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Interest rates will go well above five percent, warns the CNB vice-governor

Mora said that at the meeting of the Bank Board on Thursday, March 31, he will advocate an increase in the key interest rate, which currently stands at 4.5 percent, by at least half a percentage point. At subsequent meetings, it will support increments as high as needed.

“I expect a debate on further rate increases and the only question is how big the increase will be. I think that circumstances will eventually force us to go with rates well above five percent, “Mora told Bloomberg.

His statement thus contradicts previous estimates of most analysts, according to which the CNB should have raised the interest rate by 0.25 to 0.50 basis points at its meeting next Thursday and stopped at the 5% level.

After all, the CNB itself issued signals that with another significant increase, it was over, and on the contrary, it could start lowering the interest rate by the end of the year. But the war in Ukraine changed the situation.

Bloomberg points out that the world’s central banks face a big dilemma: to address rising inflation at a time when the war threatens to slow down economic growth.

“Although the risk of stagnation is real, the economic slowdown may not be so severe, mainly because we have a very tight labor market. People still have huge savings and spend, “said Mora.

CNB Governor Jiří Rusnok recently announced that the Bank Board would discuss the possible sale of part of its foreign exchange reserves in order to temporarily strengthen the koruna, which would help limit further price increases. To prevent the koruna from weakening excessively, the bank intervened in the market earlier this month.

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