Czech National Bank likely to hike key interest rate again

The possibility of Czech National Bank hiking the key rate again has increased noticeably following the positive and considerable surprise in the second quarter data. The GDP grew 4.7 percent year-on-year and the average real wage growth came in at 5.3 percent year-on-year, posing a significant pro-inflationary rise, which, along with the situation around the overboughtness of koruna and significant property price growth, creates space for a further rate hike to 0.50 percent in 2017, noted Erste Group Research.

Monetary conditions have been gradually tightening in the Czech economy since the exit from the FX cap. Apart from the koruna appreciation, the central bank hiked the 2W repo rate by 20 basis points in August. According to  Erste Group Research, the central bank’s decision was motivated mainly by the overboughtness of the koruna along with the favourable development of the Czech economy and the double-digit year-on-year growth in property prices.

“The risk of koruna depreciation (driven by technical-factors) has remained high and the recent data poses a significant pro-inflationary risk to the CNB’s forecast. For this reason, we expect the CNB to increase interest rates in 2H17”, added Erste Group Research.

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