Czech National Bank maintains interest rate at 7 percent

The Banking Council of the Czech National Bank (CNB) has this afternoon kept the base interest rate at 7 percent, as had been widely expected by analysts. SAB Finance analyst Tomáš Kudela has said that owing to gradually decelerating inflation in Czechia, a rise in interest rates is off the cards.

The Lombard rate (the interest rate charged by the CNB when giving short-term loans to other commercial banks) and bank rate (the amount of interest the CNB charges on its loans to banks) remain the same, at 8 and 6 percent respectively. The last time that the interest rate was changed was in early May 2022, when it moved from 5.75 percent to 7 percent.

The CNB declared that it wants to continue preventing excessive fluctuations in the crown, hence keeping the interest rate as it is rather than lowering it. The crown is currently trading at EUR 1: CZK 23.76 – markedly better than exactly 12 months ago, when EUR 1 was worth CZK 24.7. After strengthening to CZK 23.3 for 1 EUR in mid-April this year, it has since gradually depreciated.

According to senior economist at Komerční banka Martin Gürtler, writing in Kurzy.cz, by “the end of this year the base interest rate should fall from the current 7 percent to 6.25 percent.” 

This is due to the CNB’s economic forecast, which predicts single-digit inflation in the third quarter of 2023. Gürtler expects only very gradual rate cuts and anticipates the first to come in September. Current headline inflation is at around 11 percent. The CNB predicts it to reach about 2 percent by the second quarter of 2024. Gürtler writes that he expects the CNB “to remain hawkish for the time being.”