Rising rates amid intense inflationary expectations
The current conflict in Ukraine is significantly influencing systematic monetary policy tensions. In the Czech Republic, too, there is a reflection in terms of interest rates. In particular, the Czech Central Bank approved a further increase in interest rates as a response to the current period of risk and uncertainty, which have become dominant variables in the current economic and financial scenario.
After the shock caused by the pandemic, for the European Union, the military conflict is added, which, together with the sanctions imposed on Russia, are causing a significant increase in the prices of energy, industrial and food commodities. As a result, a strong inflationary push is expected in the near future, settling at values that are not encouraging through the end of 2022. However, according to analysts, interest rate growth is not expected to be considerably expansive since, according to Generali CEE Investments analyst Radomír Jáč, interest rates are already close to their peak. As far as economic development is concerned, CNB Governor Jirí Rusnok reports: “According to our preliminary forecasts, the conflict in Ukraine will halve the economic growth expected this year. The drop in foreign demand will be reflected in the domestic economy not only in low exports but also in lower investment activity by companies.
In conclusion, the Bank Board has made a careful assessment of the risks to which the system is exposed, so restrictive monetary policy solutions are necessary to ensure the convergence of inflation to the 2% target in order to guarantee the long-term prosperity of the Czech economy.
Source: www.cnb.cz
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