During the last weekend, the Czech Republic held one of its probably most important election in years. The Parliamentary Election, which many media had described as the ones in which Czechs would decide whether their country would follow a similar path as Poland or Hungary, have seen the success of liberal democratic parties over populism and nationalism.

 

The Czech citizens will soon cast their vote in one of the most important election over the past few years. Not only because they will select new members for the most important legislative body in the country - the Chamber of Deputies, but because it will be also crucial for the opposition parties, which have come together like never before to challenge the current PM – Andrej Babiš.

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The central bank raised its key repo rate by 75bp at its September meeting, whereas the market expected a 50bp hike. The strong rate increase is primarily a response to rising inflation, which is already reflected in higher inflation expectations. According to our forecast, inflation will continue to rise for the rest of the year, exceeding 5% yoy at its end. Therefore, we expect a repo rate of 2.00% at end-2021 and a further increase to 2.50% at end-2022. This is close to the level that the central bank considers to be monetary policy neutral.