NEWS / Foreign Exchange

Czech Republic: Czech rates kept on hold

Today??™s announcement from the Czech central bank that it will keep the key policy rate unchanged at 2.50% came as no surprise; this is the seventh consecutive month with interest rates on hold.

The decision to keep interest rates on hold still has to be seen in the light of the fairly low inflation in the Czech economy, but one could expect that the central bank will shift its rhetoric to more hawkish. Furthermore, some of the hawks on the CNB board may propose that interest rates should be higher.

However, although inflationary pressure in the Czech economy is still relatively low, inflation risks do exist as retail sales figures show that the consumer??™s appetite for spending remains strong. Annual inflation reached 1.9 % in March and is expected to rise further in the coming months, approaching the CNB??™s target inflation rate of 3 %.

We expect the CNB to raise its key policy rate by 25bp at the next policy meeting in July. Our Czech interest rate forecast is 2.75%, 3.00% and 3.00% in 3 months??™, 6 months??™ and 12 months??™ time, respectively.

The Czech koruna (CZK) was unchanged following the announcement, at 28.135 against the EUR.

The press conference will be held at 16:00 and we will comment on the statements tomorrow.