Czech Republic Key Interest Rate Remains Unchanged

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The Czech Republic’s central bank left its key interest rate unchanged Wednesday, for a seventh straight session, citing substantial risks to the economic outlook.

The bank board unanimously decided to keep interest rates unchanged, the Czech National Bank said in a statement.

The benchmark two-week repo rate was held steady at 0.25 percent, as expected. The previous change in the rate was a 75 basis points reduction in May last year at the peak of the coronavirus pandemic.

The central bank reduced the rate by a cumulative 200 basis points last year after a pre-pandemic quarter-point hike early February.

The bank left the discount rate unchanged at 0.05 percent and the lombard rate at 1 percent on Wednesday.

The uncertainties and risks of the current forecast in the context of the ongoing pandemic remains “very substantial”, the bank said.

“A slower fading out of the unfavorable epidemic situation, and thus slower opening of the domestic and European economies, remains the most substantial risk,” the CNB said.

“This could lead to a need to keep the monetary conditions accommodative for rather longer than in the forecast.”

The bank expects inflation to fluctuate around the target of 3 percent this year and to be slightly above it next year as a result of an increase in excise duty on cigarettes.

The CNB expects the economy to return to year-on-year growth in the second quarter. The bank forecast economic growth of more than 2 percent for this year and expects the pace to pick up further next year, fostering a gradual return of economic activity to the pre-pandemic level.

The koruna will continue to appreciate gradually, the central bank said.

Capital Economics economist Liam Peach expects the bank to provide further guidance about the outlook for policy at its meeting in May.

“We think the first interest rate hike to 0.50 percent will come in November once most virus restrictions have been eased and the economic recovery has started to take shape,” the economist added.


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