Rising Market Rates in Recent Weeks Threaten to Increase Loan Prices

While the Czech National Bank has been lowering interest rates this year, market rates in the interbank market have risen in recent weeks, reaching their highest since the end of last year. As indicated by analysts, this trend threatens to increase the cost of loans and mortgages.

“Central bank interest rates are one thing, but not less important are the rates in the interbank market, especially for the real economy. In recent weeks, these rates have erased the decline that prevailed in recent months. The five-year crown swap price has recently exceeded four percent, reaching the highest level since November. It was around 3.3 percent in mid-March,” analyst Jiří Tyleček of XTB said.

Market interest rates began to rise again when expectations were not met that the CNB would quickly lower interest rates, according to Deloitte analyst David Marek. Despite the central bank’s model showing that the main repo rate should now be roughly 4.5 percent, the reality is a rate of 5.75 percent.

Domestic rates of longer maturities have slightly decreased since last week, but they are still the highest since December 2023, noted analyst Jakub Seidler of the Czech Banking Association. This development, in his view, somewhat narrows the space for a further faster decline in mortgage rates, which began this year, although mortgage rates themselves react to the development of market rates with a several-month delay.

In a turn of events, the provision of a five-year loan for a bank is now approximately 0.7 percentage points more expensive than just a few weeks ago. “If the price of money remains high, even the price of loans and mortgages is at risk. It would be a complete change in the assumption in the interest rate market, where a sharp drop was expected this year. And even if interest rates fall this year, it should not significantly decrease,” estimates Tyleček.