Update: 08.03.2023 16:02
Issued by: 08.03.2023, 14:36
Prague – Today, as expected, the Banking Council of the Czech National Bank (CNB) again left the base interest rate at seven percent. This was announced by CNB spokeswoman Petra Krmelova. The base rate has remained at the same level since June last year. Today, the Banking Council also officially ended the intervention regime to support the kroon exchange rate, which began in May 2022. Leaving CNB interest rates unchanged was in line with financial market expectations. Analysts interviewed by CTC agreed with this. However, their assessments of the central bank’s next steps differ.
Since October 2022, the CNB has not intervened in the foreign exchange market against the weakening of the krone. Today, the Banking Council indicated that, in principle, it will always prevent excessive exchange rate fluctuations that threaten price or financial stability when it deems it appropriate. With the formal end of the intervention regime, the Board of the Bank also resumed the program of selling part of the proceeds from foreign exchange reserves.
In addition to the base interest rate, the Council of the Bank also left the Lombard and Discount interest rates unchanged. The Lombard rate, at which commercial banks can borrow money from the central bank secured by securities, remained at 8 percent. The discount rate, to which, for example, penalties for non-performing loans are linked, is still six percent.
The current period without interest rate changes is the longest since 2017. This was the end of a nearly five-year period in which the base interest rate remained unchanged at 0.05 percent. Since 2017, the Council of the Bank has changed rates at least once a year.
The bank’s board’s decision is in line with analysts’ expectations. While price pressures in the economy are easing, inflation remains too high for the central bank to cut rates, they said. Inflation in June was 9.7 percent.
Interest rates on bank deposits and loans depend on the rates of the central bank. Higher interest rates make investment and transaction loans more expensive for businesses and home loans more expensive for households.
A press conference after the council meeting will take place at 15:45 with the participation of the head of CNB, Alyosha Michl. On it, he will present the reasons for today’s decision, as well as the new macroeconomic forecast of the CNB, on the basis of which the board of the bank made its decision.
Analysts: Keeping CNB rates unchanged was in line with financial market expectations
Keeping CNB interest rates unchanged was in line with financial market expectations. Analysts interviewed by CTC agreed with this. However, their assessments of the central bank’s next steps differ.
“The stability of interest rates is not surprising. Even from those bank board members who called for a tightening of past policies, in recent weeks we have heard the opinion that the time for a signal increase in interest rates has already passed,” Generali said. Investment analyst Radomir Yach.
“The decision was made early on and no other scenario was possible this time,” added Tomasz Kudla, Ebury’s Sales Director. However, there is much less agreement among analysts on the future steps of the CNB. While some of them expect a quick rate cut only in early 2024, Ebury analysts, on the other hand, expect the first rate cut already during the last quarter of this year.
Leaving rates at the current level was an expected step, the increase will not have an effect, 4fin consultant David Kruta told CTC. According to him, the CNB will start cutting rates only when it becomes clear that inflation will not return above the 10% mark. Therefore, if the economic situation develops according to plan, it can be assumed that the CNB will be able to start a gradual reduction in rates somewhere between 2023 and 2024, he calculated.