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2021/06/11 / Erste Group Research

CNB to start policy tightening soon

The Czech economy has been recovering since the second half of April, mainly because of the improved pandemic situation in both the Euro Area and the Czech Republic. GDP growth is driven by both domestic and foreign demand and this story should continue for the rest of this year (although the pandemic still poses significant risks for the autumn or winter). Favorable economic development will continue in the next two years, when the economy will also be supported by EU funds.

Given the strong labor market and recovery of demand, headline inflation jumped above the upper bound of the tolerance band already in April and remained close to it in May. We expect inflation to be rising in 2H21, mainly because of both demand and supply side factors. Facing strong pro-inflationary pressures, the CNB could start policy tightening very soon and continue hiking in the next two years. The koruna will keep strengthening, as a result of the rising interest rate differential and renewed economic convergence.


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General information

AuthorErste Group Research
Date2021/06/11
Languageen
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusCzech Republic
Currency in focusCzech Koruna
Sector in focus-
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