Czech Republic Monetary Policy November 2022

Czech Republic

Czech Republic: The Czech National Bank stands pat in November

November 3, 2022

At its 3 November meeting, the Board of the Czech National Bank (CNB) left the two-week repo rate unchanged at 7.00%. In addition, the CNB left both the Lombard rate and the discount rate unchanged, at 8.00% and 6.00%, respectively. However, the decision was not unanimous: Two of the board’s seven members voted to hike all three rates by 75 basis points.

The Bank decided to stand pat for the third consecutive meeting, reiterating that the current level of interest rates was already having a negative effect on domestic demand. Meanwhile, the Bank expects headline inflation to peak in the coming months, to reach around 20.0% at end 2022, mainly due to increases in gas and electricity prices. It sees inflation averaging 15.8% in 2022 and returning to the 2.0% target within one year and a half.

Looking ahead, the Bank sees both strong upside and downside inflationary risks. Faster-than-expected wage growth, a more expansionary fiscal policy, de-anchored inflation expectations and higher imported raw material costs pose the main upside risks. On the other hand, the increasing likelihood of a recession in both the Czech Republic and globally and a stronger-than-expected slump in domestic demand represent the key downside risks. The Bank therefore stated that “interest rates will remain relatively high for some time”.

The next meeting is scheduled for 21 December.

FocusEconomics analysts are still assessing the latest decision and new forecasts will be released on 1 December.

Author: Massimo Bassetti, Senior Economist

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