Czech raises rate 25 bps, further details to come

     The Czech central bank raised its benchmark 2-week repo rate by 25 basis points to 2.25 percent, with further details to be announced at a press conference by its governor, Jiri Rusnok.
      It is the first rate hike by the Czech National Bank (CNB) since May 2019 when it paused in its tightening cycle that began in August 2017 after the rate had been raised 8 times and by a total of 1.95 percentage points.
      But 2 of the bank's 7 board members have voted to raise rates in the previous three monetary policy meetings, pointing to inflation that has been above the CNB's 2.0 percent midpoint target since May 2018.
      In December inflation rose further to 3.2 percent, the highest rate since October 2012 and above CNB's forecast of 2.9 percent.
     CNB targets inflation of 2.0 percent, plus/minus 1 percentage point.
      The Czech koruna, which has risen since October, jumped in response to the rate hike to 24.9 to the euro from 25.0.
       During 5 years of extraordinary easy monetary policy from November 2012 to August 2017, CNB not only lowered its key rate to a rock-bottom 0.05 percent but also intervened in foreign exchange markets to keep the koruna from rising against the euro as an additional tool of monetary easing.
       As a first step toward tightening its policy stance, CNB in April 2017 scrapped its commitment to keep the koruna below 27 to the euro which then immediately jumped. It then eased and settled around 25.8 between July 2018 and October last year.
       Since then the koruna has been rising steadily and has now broken the psychological 25-euro barrier, a level not seen since 2012.
     

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