The Czech National Bank, which raised the key interest rate for a second time this year on Thursday, is likely to hike it again, taking it to 1.25 percent by the end of this year, Capital Economics economist Liam Carson said.
The board of the Czech National Bank raised the two-week repo rate by 25 basis points to 1 percent, in contrast to economists’ expectations for a hold. The bank had previously lifted it in February by a quarter point.
“It appears that policymakers were concerned by the latest economic data,” Carson noted.
Wage growth accelerated at the fastest pace in a decade and quicker than productivity growth to 8.6 percent in the first quarter. Inflation rose to 2.2 percent in May.
“We expect that it will rise further above the central bank’s 2% target in the coming months,” the economist said.
“Moreover, while the CNB projected that the koruna would strengthen against the euro in its latest Inflation Report, it has actually weakened in recent months, providing the MPC with more room to tighten policy.”
Carson said Capital Economics will revist the forecast for another hike this year, if the CNB policymakers strike a particularly hawkish tone in the post-meeting press conference that is scheduled later on Wednesday.