As expected, the Czech National Bank left interest rates unchanged. However, in the new macroeconomic forecast, it improved its estimate of this year’s economic growth to 2.2 percent from the previously expected 1.7 percent. For 2022, the CNB lowered its estimate to 3.8 percent from the previously estimated + 4.2 percent. According to the forecast, the CZK exchange rate will continue to strengthen gradually, partly due to the expected improvement in sentiment and the opening of the economy, said CNB Governor Jiří Rusnok at a subsequent press conference. However, if anti-epidemic measures in the Czech Republic last longer than expected in the new macroeconomic forecast, he could reduce the need to tighten monetary policy.
“This would, of course, lead to significantly lower economic performance in the whole year, and it would undoubtedly have an impact on the more anti-inflationary behavior of price developments,” Rusnok told a news conference.
The Council left unanimous interest rates unchanged today. The basic interest rate, on which the interest rate on commercial loans is based, thus remains at 0.25 percent, the discount rate at 0.05 percent and the Lombard rate at 1%. Rusnok also said that the stability of market interest rates was consistent with the new forecast, followed by their gradual rise from about the middle of this year.
The Board last changed rates last May 7, when it reduced the key interest rate by 0.75 percentage point to 0.25 percent. Earlier, the council cut interest rates twice in March. The aim was to mitigate the economic impact of the spread of coronavirus. Preliminary data from statisticians show that it has a record drop of 5.6 percent last year. This year, according to forecasts, it should grow again, driven mainly by industry, which has remained more or less spared the restrictive measures introduced in the fight against the pandemic.
As for the CNB, it expects real GDP to grow by 2.2 percent year on year this year, as shown in the new macroeconomic forecast published today (see below). For comparison, the Ministry of Finance in the January forecast estimated this year’s economic growth at 3.1 percent and next year at + 3.4 percent.
The CNB expects average annual inflation to be 2.0% for this year and 2.2% for 2022. In the previous November forecast, the central bank estimated average inflation at 2.3% this year and expected 2% next year.
According to the new forecast, the CNB expects the average exchange rate of the Czech koruna to be CZK 25.8 per euro this year and CZK 24.9 per euro in 2022. The current estimates have been set at CZK 26.6 and CZK 25.9 per euro.
From the Source: CNB, ČTK, Reuters Patria.cz, Jana Knechtlová Patria Finance
