ČNB tries to douse inflation fire, raises rates 0.25%

The Czech National Bank surprised no one on Thursday by raising its basic interest rate by 25 bps to 0.75%. The bank first raised rates (from 0.25 to 0.50% ) in June in an attempt to bring under control runaway inflation spawned by huge public expenditures and global supply chain disruption. Many economist expect ČNB to continue its attempts to strangle the inflationary demon in future meetings this year. Few expect it work, but from a real estate perspective, the interesting bit will be watching to see if there’s any cooling in the mortgage market. Demand seemed to spike after the June rate rise as families flooded into the waiting rooms of banks to finalize mortgage loans before rates got any higher.

What’s definitely not cooling off is the retail sector as sales returned to their pre-Covid levels in June, jumping 7.1% y-o-y. That follows 7% gains in both April and in May, according to the Czech Statistics Office. Sales of non-food items rose 9.9%, with electronics revenues jumping nearly 25% and fuel by 6.6%. This surge in spending as Czechs vent pent-up savings is helping drive inflation, which ČNB governor Jiří Rusnok admitted would be higher than expected. Back in May, he’d predicted 2021 would end up with an overall rate of 2.7%. The bank now hopes prices will rise by just 3%, but there’s concern that even another rate hike in September may not be enough to get things under control.

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