IIn the Czech Republic, interest rates continue to fall and the krone depreciates. This means that travelers get more crowns for the euro, making their stay in Prague a little cheaper. On Thursday, the Czech National Bank reduced the interest rate for two-week repo transactions by 0.5 percentage points to 6.25 percent. The rates for the less important discount and Lombard transactions were also reduced by 0.5 points. While the European Central Bank (ECB) and the American Fed are still keeping their interest rates high, the Prague Central Bank is accelerating its interest rate reduction process, which began in December with a step of 0.25 percentage points.
Several members of the Bank Council had described such a reduction as possible given the leveling off of inflation.Market observers expect January inflation to fall to 2.7 to 2.5 percent. Inflation of 6.9 percent in December was distorted by one-off effects. Analysts now expect further monetary policy easing over the course of the year and a rate of 4.5 percent (Unicredit) or 4.0 percent or even less (ING) at the end of the year.
Other central banks are also cutting
In Hungary, the central bank reduced the market-determining interest rate by 0.75 to 10.0 percentage points the previous week. The Polish central bank left the key interest rate unchanged at 5.75 percent on Wednesday after it had already initiated easing in the autumn and thus earlier than the Prague central bankers. In Serbia, the central bank kept the key interest rate unchanged at 6.5 percent on Thursday.
The foreign exchange market had anticipated the expected interest rate cut in the Czech Republic with a weakening of the krone exchange rate. For the first time since May 2022, more than 25 crowns had to be paid for the euro this week. Nevertheless, after the decision on Thursday, the price shot up to up to 25.10 crowns per euro, but then weakened slightly again.
Prague government divided over joining the euro
Meanwhile, the Czech government remains divided over whether and when the country should join the euro area. Four of the five coalition partners are in favor of doing this soon. Only Prime Minister Petr Fiala's Civic Democrats are currently rejecting this. They point to surveys in which 70 percent of Czechs declare that they want to keep the crown as a means of payment. European Minister Martin Dvořák had to withdraw the appointment of a representative for the introduction of the euro. Instead, the National Economic Council is supposed to evaluate possible entry into the euro by October.
Even before that, EU accession, which carries the promise of joining the euro, could have its own day of commemoration: May 1st. The government was able to agree on this.
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