The Czech National Bank (CNB) board on Thursday raised interest rates for the first time since 2022, with the key repo rate increasing to 3.75 percent. The decision came despite a ceasefire between the United States and Iran, which had eased concerns about an oil price shock. The Prague Stock Exchange reacted to the news with a decline, with the PX index falling by more than one percent. Commercial banks are beginning to respond by improving the interest rates on savings products. Domestic mortgages remain expensive due to the higher rates set by the CNB and European interest rate swaps.

The CNB board on Thursday decided to raise key interest rates by a quarter of a percentage point. The two-week repo rate rose to 3.75 percent from June 19, the discount rate to 2.75 percent, and the Lombard rate to 4.75 percent. Six out of seven members of the board voted in favor of the increase. This was the first change in key rates since May of last year and the first tightening of monetary policy since June 2022, when the repo rate rose to as high as 7 percent due to high inflation.

Governor Aleš Michl stated at a press conference that the CNB board sees a predominance of risks towards higher inflation in the domestic economy, and that was the main reason for tightening monetary policy. The decision was made even though, shortly before, the United States and Iran signed a preliminary ceasefire, which eased concerns about further increases in oil prices.

The Prague Stock Exchange weakened significantly on Thursday after the CNB announced its decision. The PX index fell by 1.33 percent to 2,553.70 points. The decline was mainly due to the weakening of shares in the energy company ČEZ, Komerční banka, and the defense and engineering group Czechoslovak Group.

Commercial banks reacted almost immediately to the decision of the central bank. mBank announced that it would improve the interest rates on its mSpořící účet Plus savings account, offering up to 4.21 percent per year instead of the previous 4.01 percent, for deposits up to 250,000 crowns. The three-month Flexi Bond, whose rate is linked directly to the CNB's repo rate, will also automatically have a higher yield.

Domestic mortgages remain expensive even after today's decision. Mortgage loans are linked to the price of money in the European interbank market, where rates have been rising in reaction to the European Central Bank's rate hikes last week. The mortgage index is currently around 5.3 percent, and today's move by the CNB does not signal a near-term reduction in mortgage rates.

gnews.cz - GH

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