Macroeconomic Forecast Czech Republic

In an effort to tackle persisting inflation, the Czech National Bank (CNB) raised its key two-week repo rates by 25 basis points to 3.75%, on February 7. The discount and Lombard rates were increased by the same amount to 2.75% and 4.75% respectively. Going forward, we expect that inflation pressures will remain elevated in H108 before it starts to level off in the second half of the year with our end-2008 forecast at 3.4% y-o-y. We also caution though, that inflationary pressures could increase in the coming quarters. The cost-push shocks to other prices and inflation expectations could increase should high food inflation not dissipate as quickly as we are currently anticipating.

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