Czech National Bank will not lower interest rates. The threat of inflation arises through the rising property prices
After a meeting of the board of the Czech National Bank, interest rates will not be reduced. This was confirmed at a press conference by CNB Governor Aleš Michl. The reasons are inflationary risks in certain sectors of the economy such as real estate trading or the service sector. Therefore, interest rates on mortgage loans will also not be reduced in the coming months, on the contrary their amount is slightly increasing month by month.
The rates, which are the basic tool of monetary policy of the Czech National Bank, and the two-week repo rate will thus remain at 3.50%, the discount rate at 2.50% and the Lombard rate at 4.50%. There was unanimous agreement among the members of the Bank Board at these rates.
All seven members of the Bank Board voted unanimously to maintain the rates at the stated level. Although the current inflation is close to the 2% inflation target, there are still inflation risks in the economy, on which the entire Bank Board agreed.
"We want to act with a hawkish tone, but all options are open and we will evaluate what is best for the economy. We do not exterminate, we fight against inflation, we decide to fight against inflation,"
The position of the banking board was summarized at a press conference by the Governor of the Czech National Bank, Aleš Michl. The CNB last set lower interest rates in 2021.
Interest rates primarily affect private individuals in terms of mortgage loan prices and also the level of interest on savings accounts. According to fresh data from Swiss Life Hypoindex, the average interest rate on mortgages even slightly rose month-on-month, and for loans at 80% of property value, it currently averages 5.05%.
Governor Michl sees the greatest risk of inflation growth in the economy in the real estate trading segment. For this reason, Michl estimated that he does not expect interest rates to decrease at the next meeting of the bank board, although he did not want to speculate too much about further reactions of bankers to the development of macroeconomic indicators at a press conference.
"Service prices, including yesterday's preliminary estimate of inflation for July, have been around 5% for more than a year and a half. Our economy is growing at a decent year-on-year pace of 2.4% in both quarters. Without energy prices, which drive lower inflation, July inflation would be 3.7 %,"
Investment analyst Vojtěch Měřínský added in a commentary on X statistical context to the reasons why the ČNB, led by Michl, continues to maintain a hawkish stance on interest rates.
As can be seen from the statistical data from the inflation basket, the service sector has a significantly higher level of inflation than the repo rate maintained by the central bank for a prolonged period.
As for the further development of the economy, we don't find much evidence for even a slight decrease in the rate (Měřínský sees a maximum decrease in the rate by 25 basis points for the next board meeting). "The risk of a weaker performance of the German economy, which, however, is offset by the planned fiscal stimulus," Michl mentioned foreign pressure at the conference.
The German fiscal package, due to the interconnectedness of the Czech economy through supply chains to Germany, may also manifest itself by increasing the amount of money in the economy and thus inflationary pressure.
