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The CNB is the first bank in Emerging Europe to halt the tightening cycle, according to UK-based forecaster Capital Economics.
a temporary external cost-push, and could not be tackled by raising rates, which would just damage industry.
“Today’s decision to keep rates on hold demonstrates the stark contrast between the new board and the previous one, which had been the most hawkish central bank in the region over the last few years”, wrote Joseph Marlow, Assistant Emerging Europe Economist at Capital Economics.
The Czech crown initially fell on the news but later recovered to around 24.57 to the euro, up 0.5%, according to Reuters.
The CNB was, with Hungary's central bank, the first to raise interest rates in June last year, ahead of the current surge
in inflation, and has continued to do so to try to change inflationary expectations. The June inflation level in Czechia of 17.2% is one of the highest in Europe, pushed by rises in energy and food prices. “We expect inflation to reach levels around 20% in the autumn”, said Michl.
The CNB worsened its inflation outlook, as the inflation
projection was upgraded from 13.1% to 16.5% in 2022, and from 4.1% to 9.5% in 2023.
The Czech economy is one of the few globally that has yet to return to its pre-pandemic size, said Capital Economics in
a note last month. Persistent issues in the industrial sector have weighed on exports and investment has been sluggish.
Czech PMI figures released this week showed that rising inflation has dampened domestic and export demand, while putting up companies' input costs as they continue to grapple with supply chain problems.
The CNB forecasts a 4Q recession equal to 1.3% peak-to- trough, but it expects overall GDP growth of 3.6% for this year, better than its previous forecast, and downgrades growth next year to 1.1%.
The CNB’s prognosis for the CZK currency is an average annual currency rate of CZK24.80 to the euro this year. The bank said it would continue preventing excessive fluctuations of the crown, a policy that has helped the Czech crown to be the best performer in CEE so far this year, according to Reuters.
Michl was appointed the governor of the CNB by President Milos Zeman – who also appoints the CNB’s board members
– in May, effective of July 1, sparking an immediate sell off in the Czech crown. Michl has vowed to keep CNB a conservative institution under his watch.
Many analysts pointed out Michl’s proximity to populist former premier Andrej Babis – Michl worked as Babis’ advisor and after Babis’ ANO made it to the Czech parliament for the first time in 2013 Michl was seen as ANO’s top choice for finance minister before Babis took the job himself. Babis also openly welcomed the appointment of Michl as the CNB’s governor.
Kyrgyzstan: Where have all the dollars gone? Ayzirek Imanaliyeva for Eurasianet
For the past month, Kyrgyzstan has been experiencing a severe shortage of dollars. Banks are rationing how many greenbacks they give customers – when they have any to give out in the first place.
As with many other problems these days, this one has its roots in Russia’s war against Ukraine.
In an attempt to maintain the stability of the foreign exchange market in Russia, the government there banned the export of anything more than $10,000 in hard currency.
As Aida Karabayeva, an official representative of the National Bank in Bishkek, told reporters earlier this month, Kyrgyzstan has customarily received most of its dollars from Russia or Kazakhstan.
Now, something else is happening. Russian nationals have been transferring or bringing large amounts of rubles to Kyrgyzstan and then cashing them out as dollars.
The National Bank in March banned companies from taking dollars out of the country, but no such prohibition is in place for individuals.
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