Czech central bank holds fire, markets await rate hike clues

PRAGUE: The Czech National Bank kept interest rates unchanged on Thursday, as expected, before it presents an update to its macroeconomic forecast which may indicate the pace of possible policy tightening later this year.

The key two-week repo rate remains at 0.25%, where the central bank has held it since last May after previous cuts totalling 200 basis points.

All analysts in a Reuters poll had predicted interest rates would remain unchanged. A majority of those polled expected a rate hike towards the end of this year, which would set Czech rate-setters apart from peers in central Europe.

Market attention was focused on the new staff forecast to be presented by Governor Jiri Rusnok at 3:45 p.m.(1445 GMT).

The previous forecast, presented in November, saw up to three standard 25-basis-point rate hikes this year.

But central bankers have repeatedly said they will approach any tightening carefully so as not to undermine recovery amid the coronavirus pandemic.

With industry running largely unaffected despite pandemic lockdowns that have kept shops, restaurants and hotels shut, the Czech economy is expected to grow again in 2021 after shrinking 5.6% in 2020.

The Czech Republic has been among countries worst affected by the pandemic in recent months, with total coronavirus cases reaching over 1 million among its population of 10.7 million.

Infections have been increasing in the high thousands daily, leaving hospitals stretched, despite restrictions on movement and retail closures.

Inflation has been easing but the European Union's lowest unemployment rate still presents some pressure, as does a record income tax cut going into effect this year.

The crown currency has recently gained to its highest levels against the euro since last March, an effective monetary tightening.

The currency was steady at 25.87 after Thursday's rate announcement.