ČNB likely to raise interest rates

Rates seem set to rise faster than analysts predicted

The Czech crown broke the border of Kč 25.60 per euro Oct. 24, reaching Kč 25.57, and is at its strongest since October 2013.

The strengthening was helped mainly by the growing investor expectation that the Czech National Bank (ČNB) will raise interest rates for the second time this year. Several members of the ČNB board have indicated the ČNB could raise the rates at its November session. This is justified by the current rate level not corresponding to a growing economy and accelerating wage growth.

Central bank board member Tomáš Nidetzký told news agency Reuters that rates could rise by as much as 0.5 percentage point, twice as much as analysts expect. “I do not think that the economy would not absorb a 0.5 percentage point increase in rates because of the key interest rate, being at 0.25 percent today, is closer to zero than to anything else,” Nidetzký said.

In an Oct. 8 interview with Hospodářské noviny (HN), ČNB member Vojtěch Benda said he could imagine raising the rate by up to three-quarters of a percentage point this year, which would mean the key interest rate could reach 1 percent. Bank board members Oldřich Dědek and Marek Mora have also indicated rates could go up.

The interest rate rose to 0.25 percent at the start of August, the first increase since 2012.

From November 2013 until this April, the ČNB sought to artificially weaken the crown with foreign exchange interventions.

The rising economy is pushing real estate prices up and inflation. Many economists say higher interest rates are one of the tools to tackle it. Households and businesses would be motivated to save more and spend less.

Komerční banka analyst Jana Steckerová told HN that the increase was unlikely to be the last, and the rates will rise next year as well.

Exchange rates - Czech Koruna Exchange Rates

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