Higher for longer. That’s been the consensus among economists when it comes to predictions about interest rates around the world. Many now believe the first rate cuts among the large economies will begin in the United States next April. For now, however, there’s no relief in sight. Not even from the Czech National Bank, which turned down the opportunity to reduce rates. Five of the 7 governors voted yesterday to leave the current 2-week repo rate at 7%.
CBN Governor Aleš Michl said the risk of setting off another round of inflation is simply too high at the moment. He warned that October’s annual inflation numbers would come in high at 8%. He described this as an optical illusion that coincides with the government’s decision last October to subsidize energy prices. Still, he’s worried employees and unions will use the situation to push for higher wages. Most of the economists Hospodářské noviny polled said they expect the CNB to reduce rates in December. But pressure is rising on the central bank to loosen the reins. The Czech economy shrank by 0.6% in the third quarter of the year, making it the only country in Europe whose output hasn’t returned to pre-Covid levels. However, there are growing fears that Europe could be sliding into recession, even while inflation levels remain inflated.
