Economic policy / Macroeconomic Indicators, Economic Growth
This section reports on economic policy initiatives of the Czech government, the EU, and other entities that have a direct impact on the competitiveness of the country. It also includes information on economic priorities of the AmCham and other leading associations.
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Spotlight issue
Slower inflation will not discourage the CNB from raising rates
The decline in car production indicates a slight month-on-month decline in industrial production in May. In the same month, on the other hand, due to the easing of epidemic measures, we expect an accelerated expansion of retail sales. In the case of consumer prices in June, we expect an acceleration in month-on-month growth after an unexpectedly small increase in May. However, the effect of last year's higher base effect should lead to a further decline in the annual inflation rate slightly below the CNB forecast. Such a development should not discourage the intention to continue raising interest rates.
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As expected, CNB has lifted key repo rate to 0.50%
As expected, the CNB raised its two-week repo rate by 25bp to 0.50% at its June meeting, with four of the bank’s board members voting in favour, another calling for a 50bp increase and the remaining two preferring continued rate stability. Persistently high inflation and significantly reduced uncertainty around the pandemic were the main reason for the rate hike. Inflation has remained above the CNB’s 2% target for more than two years, which could have an adverse effect on inflation expectations. Moreover, current economic trends are pro-inflationary. Governor Rusnok said at the press conference that, if necessary, the CNB is ready to increase interest rates at each subsequent monetary policy meeting. However, he currently does not think this will be the case. We expect two more hikes this year pushing the repo rate up to 1% at the year-end.
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