During the Economic Lunch Briefing Event, organized by the Italian-Czech Chamber of Commerce on 19 October 2021, with the presence of renowned economists, the macro-economic updates of the Czech Republic have been deepened, such as the impact of recent fiscal policies and prospective expectations in a European vision. In particular, Marek Mora, Czech economist, member of the board of directors, and deputy governor of the Czech National Bank outlined the policy adopted by the National Bank in the Czech Republic in response to the rise in inflation.
Macro-economic overview of the Czech Republic
The Czech economy was already characterized by an above-average inflationary situation before the Covid 19 pandemic. The lifting of the restrictive measures has led to the emergence of strong inflationary pressures supported by pandemic-related supply shocks. At present, the economy is recovering rapidly and is characterized by falling unemployment, forced savings on consumption, and high wage growth, which have generated significant inflationary pressures. Inflation in September reached almost 5%. The rise in prices affected the goods sector and especially the services sector. For these reasons, the Czech National Bank has joined a group of central banks that have already begun to tighten monetary conditions again. The CNB recently increased the repo rate in three stages from 125 b. p. to 1.50%, while in September the maximum was 75 b. p. The discount rate was raised to 0.50% and the Lombard rate, the interest rate applied by central banks when granting short-term loans to commercial banks, rose to 2.50%.
Monetary policy in the Czech Republic as a response to rising inflation
The Czech Republic continues to be dominated by an increasing contribution of food prices and inflation, in September it reached 4.9%. Following the reopening of the economy, statistical data show a significant acceleration, especially in services. Domestic consumption and the improvement of the household financial situation were the main drivers of the economic recovery. The problems of the GVC ( global value chain) had a negative impact on the export performance of domestic companies in addition to the recovery of domestic demand mitigated by the contribution of net exports. The main causes that will keep inflation at a high level for a long time are the scarcity of some raw materials, which will continue for a long time, the economy that will not see an increase as expected, and expansionist fiscal policies. Public support for the Czech economy has remained a significant fiscal boost and it should be noted that these current fiscal policies have created a large structural deficit for the country. The Czech Republic appears to have problems with the aggregate supply and not concerning aggregate demand. To boost the Czech economy, the Central Bank has decided to raise interest rates to counter aggregate demand which causes a general rise in prices. This increase in interest rates will not lead to the depreciation of the Czech koruna, but experts hope the opposite. Indeed, the Czech Central Bank has always preferred to implement monetary policies focused on the interest rate and not on the exchange rate, but the latter are usually discarded to prevent the Czech koruna from losing value.
Source:http://www.camic.cz
