MNI CNB WATCH: Rates Held As Inflation Outlook Strengthens
The Czech National Bank’s Bank Board voted unanimously to leave interest rates unchanged on Wednesday, as it delivered a generally hawkish message to investors with the outlook adjusted from “modestly inflationary” to “more inflationary.” (See MNI EM CNB WATCH: Core Inflation, Uncertainty Argue For Hold)
Monetary policy is in “slightly restrictive” territory following the decision to hold the key 2W repo rate at 3.75%, the CNB said in a statement, with inflation seen “slightly above” 2% throughout 2025 before converging to target in 2026.
Services price growth continues to make a major contribution to inflation, the Bank said, also highlighting growing concern over the potential impact of U.S. tariffs on import prices.
Newly-announced plans for fiscal expansion mean a marked downturn in the German economy is less likely, policymakers noted, although trade wars could prompt a slowdown in global economic activity in the longer term.
"The Bank Board assessed the risks and uncertainties of the outlook for the fulfilment of the inflation target as inflationary overall," the Board said.
"As regards domestic inflationary risks, the risk of higher-than-expected inertia in services and food inflation persists. Potential additional growth in total public sector spending would lead to a risk of fiscal policy having an inflationary effect. Increased wage demands in the private and public sector are an additional upside risk."
The CNB revised upwards its estimate of Q4 2024 GDP growth to 1.8% from February’s 1.6% flash estimate. Household consumption "in particular surprised, as its recovery is gathering pace," but corporate investment remains low due to a combination of weak external demand and subdued sentiment, it said.
Wage growth stood at 8.3% over the same period, 0.6% faster than forecasted, with labour markets still tight. Once again, the CNB drew attention to upside inflation risks from an acceleration in lending activity, especially on the property market.
