The Czech National Bank (CNB) kept the interest rate at 7 percent on Wednesday. The rates have not changed since June. Six board members voted to maintain the rates, while one wanted to increase them by 0.25 percentage points.
The board will consider raising rates at the May meeting. Governor Aleš Michl defied expectations that the CNB would start reducing rates from the summer. “We may not be at the peak of interest rates yet,” he said after the meeting. He added that there was no discussion about a possible rate cut.
“The bank board is still prepared to raise rates, especially if the risk of a wage-price spiral increases. From this perspective, market expectations that rates have already peaked may not be fulfilled. We consider market expectations regarding the timing of the first rate cut by the CNB as premature,” the CNB said.
Wages are growing faster, and the central bank pointed out that this drives inflation. In January, wages grew faster than forecast, rising by 12 percent in industry and 15 percent in construction. The CNB anticipates an overall growth of 8.5 percent. “Moderate wage development and responsible fiscal policy are prerequisites for long-term price stability.”
The base rate remains at 7 percent, the discount rate is at 6 percent, and the Lombard rate is at 8 percent. “The bank board also decided that the CNB will continue to prevent excessive fluctuations in the crown’s exchange rate,” said CNB spokesperson Petra Krmelová.
In February, the CNB announced that it did not intend to adjust the rates, and analysts did not expect it either. The board has clarified that it does not want to raise and lower rates later. It has indicated that it is counting on a solid crown in the fight against inflation.
However, its exchange rate has declined in recent weeks. Michl reiterated on Wednesday that a strong crown is still essential and “could be even stronger.”