ČNB raises benchmark by 0.25 point

EU

The Czech National Bank Board raised interest rates by a 0.25 point today, pulling the benchmark to 3.00%.

The benchmark rate is still the lowest in the EU. The step was widely expected because of economic developments pushing for faster inflation. Bankers reacted above all to three phenomena - the fastest household consumption in the past three years, the highest wage growth in five years, and a weak crown to the euro.

This all means a risk of higher inflation. Central bankers last changed interest rates at end-May, when they came up with a quarter-point increase. Some analysts have said the Czech National Bank may raise rates at least once more this year. According to some analysts, bankers may raise the benchmark rate to at least 3.50% in a year, and expect another rate increase at the turn of 2007 and 2008.

The Czech crown did not react too much to the rate hike and after traded at the morning's 28.12 Czech crown to a euro. The Prague Stock Exchange (BCPP), in contrast, is falling further. The CNB is the only central bank in the region that has changed interest rates this week. Poland has kept the benchmark rate at 4.5% and Hungary at 7.75%.

The National Bank of Slovakia holds a policy meeting on July 31, but it is not expected to change rates from the current benchmark of 4.25%. The euro zone rate is now at 4%. Country Benchmark rate in CzechRep 3%, euro zone 4%, USA 5.25%, Hungary 7.75%, Poland 4.50%, Great Britain 5.75%, Switzerland 2.50%, Singapore 2.38%, Japan 0.50%, Turkey 17.50%.

On July 24 the Hungarian monetary council left the central bank’s base rate of interest at 7.75%, the Hungarian National Bank (MNB) announced. At the monetary council’s last meeting on June 25 the council reduced the base rate from 8% to 7.75%. The council can see an opportunity to further reduce the base rate in the future.

At the same time, the level of uncertainty in both the Hungarian and the international economy is still high, which will require careful and gradual reduction in the base rate, MNB’s announcement says. MNB president András Simor added that although there was an interesting and lively discussion at the rate setting meeting, the vote came unanimous. (Gazdasági Rádió, praguemonitor.com, Magyar Hírlap)

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