Central bank raises interest rates to twenty-year high

The board of the Czech National Bank has announced another significant increase in interest rates. The base rate will rise by 0.75 percent to a total of 4.5 percent, the highest level seen in the Czech Republic since January 2002.At the same time, it increased the discount rate by the same amount to 3.50% and the Lombard rate to 5.50%. The new interest rate levels come into effect on 4 February 2022.

In its latest forecast the central bank predicts that inflation will rise further in the first quarter and eventually exceed 9%. Inflation will peak in 2022 H1 and then fall gradually. GDP will rise by 3% this year and its growth will accelerate slightly next year.

Economic growth will continue to be driven by household consumption, with corporate and government investment rising as well. Export growth will resume in the second half of this year. Domestic economic activity will reach the pre-pandemic level by the year’s end.