The Czech National Bank (CNB) increased the two-week repo rate by 25 base points to 2% from 1.75%, the highest level since February 2009.

The Lombard rate amounted to 3% and the discount rate to 1%, according to the press release published by the CNB on May 2. The central bank´s decision to hike its rates is based on its new macroeconomic forecast.

At the press conference, the CNB Governor Jiri Rusnok said he expects interest rates to be stable in 2019. “Any further hike this year is only likely if there is a significant improvement in foreign developments. This does not seem very likely at this point,” the ING Chief Economist Jakub Seidler said, adding that ING observes a non-negligible change in the CNB reaction function as the CNB staff forecast (for interest rates) now matters less and the expert judgement of the board members’ matters more which is a significant shift from the 2016-2018 state of affairs.

According to daily E15.cz, the banks are not planning to increase their interest rates. “At the moment we don't plan a change in mortgage interest rates. We monitor both the CNB´s interest rate and the rate offer of our competitors,” said the Air Bank spokeswoman Jana Karasova. Neither Ceska Sporitelna nor Komercni Banka plan any changes.

“With the CNB likely reaching the end of the tightening cycle, the main factor holding the overbought CZK together (hawkish CNB) has now vanished. Coupled with the slowing Czech economy and the maturing global economic cycle, we now see CZK upside as exhausted and look for a permanent trend in EUR/CZK higher, mainly from 2H19 onwards,” Seidler concluded.