The Czech National Bank raised rates by a full percentage point to 3.75% yesterday, outstripping the general consensus that a 75 bps increase would be enough. For some reason, the television pundits last night looked amazed by the move, but the CNB adopted its Shock & Awe strategy back in September, with an impressive willingness to disregard market expectations. For context, the Czech 2-week repo rate was a piddling 0.25% as recently as May, when home mortgages were sliding beneath 2%. Inflation was already making some people nervous at that point, but most economists still argued that it would be “transitory”.
The CNB nudged rates up by 0.25% in June, but that felt symbolic at best. By September, though, alarm bells were in full song and the nation’s bankers took decisive action with a 75 bps hike. Even that was nothing compared to the November Shocker: a 1.25% rate hike to 2.75%. That lasted until yesterday, when they decided to surprise the markets once again. The average mortgage rate is still below 3%, but this is probably because older contracts are still working through the system. According to market reports, people beginning their search for finance today would do well to borrow at less than 4% — and that was before yesterday’s intervention. CNB governor Jiří Rusnok warned further rate hikes will be needed…so don’t say you weren’t warned.
Also in ThePrime