We're already at five percent.
The base interest rate was raised by a decision of the Czech National Bank's Bank Board by 0.5 percentage points to equal 5%, effective from 1 April 2022. Governor Rusnok and his colleagues are reacting to the long-term unfavourable development of inflation. According to some estimates, inflation may reach 15%. The two-week repo rate, which was last at a comparable level in 2001, is set to increase to five per cent to make access to credit more difficult, dampen the economy and thus keep inflation under control. The CNB's activity has its obvious justification. The Czech economy exhibits increased sensitivity to external events due to the relatively marginal position of its own currency in the European context. It is also influenced by the low level of unemployment, which is often presented as a positive phenomenon. However, at its current level, it is clearly an obstacle to economic development, after all, as are the increases in all three base rates (Lombard, discount and repo) decided by the Board today. When the energy crisis and the still pending Covid-19 pandemic are added to the Ukraine-Russia war, with its unclear scenario and denouement, in which more or less the whole world is involved, trouble is brewing. Czech companies are, among other things, being led to consider securing credit in euros, which at the same time reopens the debate at the corporate level on the fulfilment of the Czech Republic's promise to join the euro area as a full user of the common European currency. Politically, however, nothing much has changed in the Czech Republic; it is still impassable to admit that we are on an unstoppable path towards adopting the euro. Although the facts speak quite clearly. In the event of large and unexpected shocks, it is better to have a strong and stable economy with half a billion people at its back than an export-oriented, easily vulnerable entity.
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