Czech National Bank expected to hike interest rates for the fourth time this year

Czech National Bank expected to hike interest rates for the fourth time this year
Czech CNB expected to hike rates for fourth time to 1.75% at November 1 meeting / bne IntelliNews
By bne IntelliNews October 30, 2018

The Czech National Bank (CNB) is widely expected to hike its main interest rate by 0.25 percentage points to 1.75% at the November 1 monetary policy meeting, Czech analysts agree, reported  the Czech News Agency on October 29. CNB will also introduce its new macroeconomic forecast at the meeting.

Another hike will be fourth in a row this year. CNB raised the main interest rate by 0.25 pp to 1.50% at its policy-setting meeting on September 26. Previously, the rate amounted at 1.25% on August 2 and at 1% on June 27.

Due to weak koruna and slow transmission of the tighter monetary policy into commercial bank interest rates, the market expects is expecting another interest rate hike. “If the CNB did not raise its rates, it would cause further weakening of koruna,” said Chief Economist at UniCredit Bank Pavel Sobisek.

The CNB is also expected to indicate it will slow its tightening policy in the new year as the Czech economic growth is expected to slow but inflationary pressures remain, while the koruna also remains under pressure, Sobisek added. The regulator will issue details of its economic outlook at the November 1 meeting in its macro economic outlook.

The chief economist of the Czech Fund Lukas Kovanda pointed out that similar increases in interest rates were seen in the spring of 1996. "The hawks think that the overheated labour market needs to be cooled. They also account for higher main rate at the current stage cycle, so that future cyclical downturn could be dampened and economy stimulated by decreasing interest rates,” he said.