The economic situation in the country is unstable. Inflation in the Czech Republic continues to rise. The war in Ukraine is also associated with a slowdown in economic growth. Despite the fact that interest rates have been rising since last year, the National Bank Board announced an increase in interest rates in the Czech Republic by another 0.5 percentage point. The key interest rate thus rose to five percent, which is the highest value since 2001. According to the bank’s management and representatives of the Czech authorities, these steps are necessary for the long-term prosperity of the Czech economy.
Such a sharp and frequent increase in interest rates is not a standard situation for the Czech Republic. Clients of commercial banks still react ambiguously to rising mortgage lending. Some try to process all the documents as soon as possible, while others choose a strategy of waiting for the situation to improve. Many experienced specialists believe that rate cuts can be expected as early as next year.
Mortgage rates are expected to rise by 6 percent. Specialists recommend reserving interest rates before they reach their maximum. Higher interest rates in crowns motivate developers and investors to switch to financing in euros.
The CNB’s main objective is the country’s price stability. The Czech Central Bank is therefore still ready to respond to excessive fluctuations in the koruna’s exchange rate. At the beginning of March, the bank announced the start of interventions in the foreign exchange market against the weakening of the koruna.
The Czech National Bank is currently not changing its forecasts for this year. A new forecast of economic development will be published in May 2022.
Read also Fuel prices in the Czech Republic have started to fall
The war in Ukraine is a big economic shock for the Czech economy. As a result, the prices of gas, petrol, oil, but also fertilizers and grain have risen. This leads to an even greater inflation crisis and greatly complicates the fight against it. In February, before the effects of the conflict were fully felt, annual inflation rose to 11.1 percent. Specialists expect prices to peak in May or June at almost 14%.
The current rise in commodity prices, the shortage of production materials and the disruption of supply chains could cause so-called stagflation in the European economy. In this situation, expensive fuels, goods and energy slow down economic growth while increasing the prices of energy and other products.
