MNI CNB WATCH: Czech Rates Held At 3.5%, Upside Risks Seen

The Czech National Bank stuck to its policy setting on Wednesday, leaving the two-week repo rate at 3.5%, the discount rate at 2.5% and the Lombard rate at 4.5%, with headline inflation expected to remain above 2% for the rest of the year and core inflation above target over the entire forecast horizon. (See MNI EM CNB WATCH: Czech Rates Seen On Hold Until At Least August)

The Bank Board views the balance of risks to inflation as tilted to the upside, despite weak external demand, due to sticky services prices, including imputed rent, and due to food inflation, bank lending activity related to the property market, and trade uncertainty, the CNB said in a statement

It provided little by way of forward guidance, save that ongoing inflation pressures from the domestic economy "currently preclude a further decrease in interest rates," and that "relatively tight monetary policy" is still required.

"The evolution of services prices and property prices, coupled with relatively fast wage growth, is the main factor leading the Bank Board to be cautious about easing monetary policy further, the Bank said, while the risk of "markedly weaker" German economic output should be partly offset by the planned fiscal stimulus of the new German government. War in Ukraine and the Middle East add to uncertainty, it said.