The Czech central bank raised its key interest rate on Wednesday for a third consecutive policy session and for the fourth time this year, as policymakers assessed that risks to the inflation outlook were balanced.
The Bank Board of the Czech National Bank raised the benchmark 2-week repo rate by 25 basis points to 1.50 percent, in line with economists’ expectations.
Six members voted in favor of this decision and one member voted for leaving
interest rates unchanged, the bank said in a statement.
The Lombard rate was raised by 25 basis points to 2.25 percent, while the discount rate by 20 basis points to 0.25 percent.
The bank raised the key interest rate by a quarter-point each in August, June and February.
According to the bank’s current forecast, inflation is set to be above the 2 percent target this year. Inflation is projected to return to target thereafter and to remain close to the target during 2020.
“Consistent with this outlook is a continued rise in interest rates towards their long-run neutral level, the CNB said.
“The Bank Board assessed the risks to the current inflation forecast at the monetary policy horizon as being balanced and insignificant.”
However, “there is still general uncertainty stemming from the growth in protectionist measures in global trade and from Brexit-related events,” the bank added.
Capital Economics economist Liam Carson said the central bank remains worried about the rapid pace of wage growth and the above-target inflation. While wage growth is not supported by productivity gains, the acceleration in inflation is led by a pick-up in core inflation.
The research firm expects the Czech inflation rate to remain above target until the end of 2019.
Carson pointed out that firms are now starting to respond to higher labor costs by raising prices and the process is likely to continue.
“Against this backdrop, further monetary tightening is on the cards over the coming quarters,” the economist said.
“We expect that the policy rate will be raised to 2 percent by the end of 2019.”