Bad crown of expected, fast wage growth and higher inflation. These are the reasons why the Czech National Bank (CNB) has raised the five-year key interest rate for which commercial banks deposit billions of Czech crowns with CNB, and thus the prices of financial products such as mortgages. The so-called two-week REPO rate rose from 1 to 1.75 percent on November 1st.
This year's rates are likely to increase. CNB Governor Jiri Rusnok said that if the next development is in line with the economic forecast, "this year is from the point of view of increasing the interest rates behind us." But if the crown would weaken, the central bank would raise rates again this year.
More expensive loans
There is already a rise in interest rates in the economy. Nevertheless, the rise in interest on the CNB side is reflected in the rates of late clients, and only partly due to the strong interbank competition. "In particular, for mortgages since the beginning of this year, we see an increase by a quarter of a percentage point, and we can expect another clear increase in the coming months," says Michal Skorep, an analyst at Czechoslovakia.
The increase in the cost of housing loans also jeopardized the new CNB recommendations, which were established since the beginning of October. It now requires that banks approve mortgages only to those applicants whose current total debt does not exceed nine times the annual net income and that the monthly repayment of the debt does not exceed three quarters of the net monthly income. Prior to the adoption of this recommendation, banks generally attracted clients at lower interest rates.
Since then, several banks have even raised interest rates on savings accounts, but there are still few cases. The largest banks do not increase the rate.
"Market competition before the introduction of new mortgage rules collapsed, regardless of the increase in the key interest rate, from mortgage rates, but this is only a one-off impact that has already disappeared," says Helena Horska, chief economist at Raiffeisenbank.
Since then, several banks have even raised interest rates on savings accounts, but there are still few cases. The largest banks do not increase the rate. According to analysts, the central bank itself and the exchange rate obligation were closed in April last year.
"The entire banking market is still undermined by the large amount of liquidity created by the CNB during the duration of the exchange rate," said economist INN Bank Jakub Seidler. As of November 7, 2013, the CNB issued about two billion crowns for intervention in about 41 months to 6 April 2017.
"This means that excess liquidity continues to affect the market because the crowns remain in the system and do not disappear nowhere.When the CNB is now raising interest rates, it is not as fast as before, even for interest rates on loans .For example, the CNB has increased rates by 1.5 percentage points in the latest period, but interest rates on the mortgage rose between today and mid-2017 to August 2018 for only 0.6 percentage points, "Seidler added.
Preparing for bad weather
According to economists, the CNB is also preparing a rate increase, as opposed to, for example, the European Central Bank (ECB), which has record rates, land at worse times. At a time when the crisis will come and the rates will have to be reduced, the CNB will have much more room for maneuver.
Four of the seven Board members voted to raise the rate by a quarter of a percentage point, one that wants to raise the rate by half a percentage point, one by one.
"The CNB definitely creates space, while the ECB does not deal with space. There is still a new euro in the eurozone, and they hope it will do so well," says Petr Dufek of the CSWS.
Four of the seven Board members voted to raise the rate by a quarter of a percentage point, one that wants to raise the rate by half a percentage point, one by one. At the same time, it was the last meeting of the Council in the current composition, because in December, two members changed, the current deputies Mojmir Hampl and Vladimir Tomšik. These will be replaced by economist and consultant Andrej Babiš Aleš Michl and head of the CNB Monetary Section Tomaš Holub. However, even those who do not expect too much for CNB to deviate from the current rate of decision-making on further development of the rate.