The Czech National Bank ("CNB") Board, headed by Governor Jiri Rusnok, met for the last time. The agenda of the meeting again included the adjustments of monetary policy, specifically the modification of the basic interest rate. It was decided that the rate would be increased from the original 5.75% to 7%. This is an increase in the rate of 125 basis points.
The CNB Council raised the rate sharply, mainly as a result of high inflation and inflation expectations. Inflation in the Czech Republic reached 16% in May. Economists expect further growth in June, and inflation could approach its peak of 20,8% in 1993. High interest rates set by CNB are intended to help control inflation growth and return to the original inflation target of 2%. The rise in prices in the economy and inflation expectations represent a pro-inflation risk for CNB, which thus had a reason to further increase the key interest rate. At the same time, 2W repo rate was only 0.25% in June last year.
Thanks to the increase in the base interest rate, we also expect further growth in mortgage interest rates. The average interest rate on mortgage loans is currently in the range of 5.5% to 6%. However, the increase will not only affect households, but also loans for entrepreneurs for operation and investment will be less available.