Czech National Bank likely to remain on hold in months ahead

The latest board minutes of the Czech National Bank show that board members felt that the economy does not need support through “technical zero” interest rates any longer. This level of rates was actually resulting in financial system distortions, including a house price bubble. These were the reasons why the Czech National Bank decided to end zero interest rates in August.

The minutes imply that the bank board considers koruna appreciation to have already led to a sharp 75-100 basis points equivalent in rate hikes. Secondly, the Czech National Bank is unsure regarding the durability of the global upswing. And lastly, the European Central Bank’s quantitative easing leaves slight room for the Czech National Bank to launch into a hiking cycle. For all these reasons, additional rate hikes are note expected to follow immediately, noted Commerzbank in a research report.

“We still see some risk of a policy mistake via further rate hikes this year in case CPI data continue to surprise to the upside in coming months; but, our base-case is that CNB will stay on hold”, added Commerzbank.

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