Michl stated that cost and demand inflationary pressures are fading in the Czech economy. Demand remains subdued thanks to strict monetary policy, and the risk of a wage-inflationary spiral did not materialize.
According to the CNB’s new forecast, market interest rates should fall rapidly this year. But Michl said that in the first and second quarters, rates will be above the level in the forecast. According to him, there are still pro-inflationary risks in the economy, the fulfillment of which would mean that although inflation will fall, it will not reach the central bank’s two percent target.
At the March meeting, the Bank Board will evaluate new data from the economy and assess whether the trend of declining inflation in the Czech Republic is permanent. The Banking Council will also evaluate how much the rate cut has been passed on to lending activity, Michl said. “The process of reducing rates can be interrupted or stopped at any time if inflation does not decrease in accordance with our prediction,” he emphasized.
The governor also said that the new equilibrium level of interest rates will be at a higher level than the market was used to before the covid-19 pandemic. The Bank Board will discuss the setting of this level.
The CNB stepped up and lowered the base interest rate to 6.25 percent
2024-02-08 15:59:52
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