Bank Board of the Czech National Bank (CNB) raises interest rates. The key interest rate increased by 0.25% to 2%. The bank raised the Lombard rate to 3% and the discount rate to 1%. The reason for the rate hike is the development of the domestic economy. In the first quarter it had grown over inflation forecasts and CNB exchange rate is weaker than the bank predicted in the February forecast. The increase in domestic interest rates and then their approximate stability by mid-2020 is consistent with the new macroeconomic forecast.
CNB's new forecast has worsened estimate of growth of the Czech economy this year to 2.5 percent and for next year to 2.8 percent. The bank is currently expecting the koruna's exchange rate to be CZK 25.30 / EUR and the koruna will appreciate to an average of CZK 24.70 / EUR next year. The inflation estimate for the second quarter of next year increased by 0.1% to 2%. For the third quarter 2020 estimate bank left at two percent. Overall, inflationary pressures are easing. The risks and uncertainties included Governor of the Bank significant and potentially long-term slowdown in economic activity in the euro area. Another risk is protectionist measures in world trade and the development of the koruna's exchange rate.
The Czech Banking Association (CBA) in the updated forecast worsened the Czech economy's growth estimate for this year to 2.4 percent from 2.6 percent in February. The estimation is complicated by the deepening uncertainty of the external environment, particularly the threat of a further slowdown in the German economy. For next year, the association estimates economic growth of 2.3 percent. Czech GDP grew decline from 4.5 percent in 2017 to solid 2.9 percent last year. The association estimated to slow last year's nominal wage growth of 8.1 percent to six percent this year and five percent next year. Average inflation should reach 2.5 percent this year.
Source: CTK, CNB, CBA, WEEKLY ECONOMIC NEWS MIT
Prepared by the team of CzechTrade Office in Israel