Monday, October 25, 2021

Czech central bank delivers biggest rate hike in 24 years to fight inflation

Prague – The Czech National Bank (CNB) raised its key rate by 75 basis points on Thursday, surprising markets with its biggest increase since 1997 and sending a signal to inflation expectations amid further price hikes. did not allow.

The Czech economy, like others around the world, is facing rising costs as it grapples with global supply disruptions, rising transport and energy prices and strong demand following the easing of coronavirus pandemic restrictions earlier this year. has been

The Czech Republic, however, also has one of the lowest unemployment rates in the European Union, and a tight labor market is putting further pressure on wages and price expectations of both consumers and companies, worrying the central bank.

“This tremendous increase in interest rates is intended to support a return of inflation toward the target on the monetary policy horizon as well as anchoring firms and households’ inflation expectations,” Governor Jiri Rusnok told reporters after the decision.

“Czech National Bank does not intend to allow (expectations) to be significantly more free than the target.”

Headline inflation jumped to a 13-year high of 4.1 per cent in August, more than a percentage point above the tolerance band around the bank’s 2 per cent target.

Rusnok said that pressure is coming not only from abroad but also from the domestic economy.

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The bank’s two-week repo rate hike stands at 1.50 per cent, the highest level since March 2020, amid emergency cuts at the start of the COVID-19 pandemic.

The board voted 5-2 for the extraordinary increase, surprising analysts in a Reuters poll who had expected a 50-basis point increase, a size many central bankers flagged in public comments.

The crown jumped on Thursday, and was up 0.9 percent that day at 25.275 at 1432 GMT, just short of its highest level since February 2020 earlier this month. Short-debt interest rate swaps climbed up to 5 basis points following the decision.

Some economists had questioned the need for significant tightening, arguing that increased inflation was driven primarily by global increases in energy prices and supply chain disruptions, factors beyond the reach of the central bank.

The Czech central bank is one of only two in the European Union to have started a tight cycle together with Hungary’s central bank. The latter slowed its pace last week, however, when it raised its core rate by 15 basis points lower than expected.

by Robert Muller and Jan Lopatka

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This News Originally From – The Epoch Times

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