On Thursday, the Czech National Bank (ČNB) lowered the country’s economic growth rate for this year and next, forecasting a 15.8 percent inflation rate in a signal that trouble lies ahead.
The Czech gross domestic product (GDP) is expected to grow by 2.2 percent this year and fall by 0.7 percent next year. In its previous August forecast, the bank had anticipated growth of 2.3 percent this year and 1.1 percent next year. ČNB Governor Aleš Michl delivered the new estimates at a press conference following the meeting of the bank board.
Last year, Czech GDP grew by 3.3 percent.
While the 15.8 percent inflation rate is historically high, it was actually a lower estimate than the previous one. In August, ČNB estimated inflation would be 16.5 percent. Next year, ČNB expects a drop in consumer price inflation to 9.1 percent. In August, it estimated a decrease to 9.5 percent.
According to Michl, the basic scenario of the new forecast is consistent with an increase in market interest rates, followed by their gradual decline over the course of the next year.
“However, at today’s meeting, the majority of the bank board preferred to keep base rates stable,” he added.
In the ČNB’s new forecast, this year the average exchange rate of the koruna should be 24.60 korunas per euro. Next year, the exchange rate is forecasted to be 24.80 korunas to the euro. In August, it estimated this year’s exchange rate at 24.80 korunas per euro and 25.70 for next year. Michl repeated on Thursday that the ČNB would prevent excessive fluctuations in the koruna’s exchange rate.