Czechs Signal Virus Won’t Undo World’s Only 2020 Rate Hike Yet

(Bloomberg) --

The Czech central bank, the only one in the world to raise interest rates this year, isn’t planning a quick reversal even as other countries ease monetary policy to mitigate the effects of the coronavirus.

Concerns about the virus’s impact on the Czech economy are “slightly overdone,” Deputy Governor Marek Mora said in a newspaper interview published Wednesday. His comments came after the U.S. Federal Reserve delivered an emergency rate cut to protect the longest-ever economic expansion.

The Czechs surprisingly lifted borrowing costs last month to tame accelerating domestic inflation. Nine rate increases in two-and-a-half years gave the central bank enough ammunition to ease policy if needed, Mora told Lidove Noviny in the interview.

“We’re at the stage of analyzing the situation,” Mora said. “We aren’t preparing any specific steps at the moment. We have room for a potential lowering of rates.”

The last month’s surprising rate increase drew a rare rebuke from Prime Minister Andrej Babis, who criticized the move at a time when the economy is slowing.

Growth in the gross domestic product decelerated more than expected to 1.8% from a year earlier in the last quarter of 2019 on weaker demand from abroad. The data underscored the central bank’s dilemma as household consumption was a key driver of growth, which continues to fuel inflation.

--With assistance from Zoe Schneeweiss.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, Peter Laca, Andrew Langley

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