Analysts expecting Czech central bank to delay interest rate rise

All eyes were on the Czech National Bank board on September 27 – though with most spectators expecting more words and not action.

Czech National Bank, photo: Štěpánka BudkováCzech National Bank, photo: Štěpánka Budková Most analysts ahead of the meeting were saying another rise in interest rates to cool down a booming economy were likely to come in November.

But central banks like sometimes to be counter intuitive entities and there was the possibility that the board could catch the analysts and market out.

The bank raised its rates last time round at the start of August – a modest rise of 0.20 points to take the reference rate to 0.25 percent. But the Czech bank is the first in Europe to start what is seen as a largely inevitable rise in rates and end of cheap money.

And it was the fact that the last rise was still relatively recent that has analysts thinking that another move right now might be too early. It would smack of unseemly haste, they say, and give the impression that the original move was not ambitious enough.

If the bank raised rates, then analysts reckoned that the crown will strengthen and could test the 26 crowns/euro level fairly quickly. Since the August hike, the crown has largely fluctuated between just above 26 and 26.2 crowns/euro.

Arguments could certainly be mustered for another rate hike sooner than later. The Czech economy is outperforming the central bank’s expectations. Gross Domestic Product was up 4.5 percent year on year in the second quarter with soaring domestic demand one of the biggest factors but increases also from manufacturing and services.

Employment was up 1.3 percent from April to June compared with the same period in 2016. And monthly wages were on average 7.6 percent higher compared with the second quarter of 2016, in real terms up 5.3 percent after inflation is factored in. The bank had forecast absolute wage growth at a lower 5.9 percent.

Figures though, like good wine, can be left to mature a bit and that also cultivates an impression of solidity and prudence, the sort of characteristics that central banks like to be known for.