Commentary by Erik Kmeta for Roklen24 | K&L Rock 1
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Commentary by Erik Kmeta for Roklen24

Published by: 20.09.2022 16:32:24

If inflation does not increase, the CNB will not raise rates before the end of the year, expert says


According to recent reports that talked about changing the trend of inflation, three things are needed, namely: reducing the national debt, avoiding a wage inflation spiral, and maintaining and stabilizing interest rates at a higher level than has been seen in the last 10 years. 


The highest point of the inflation curve or the moment of change is at the turn of 2022 and 2023, according to the CNB, where we see a rebound from the highs. The standard is that interest rates follow the inflation curve with a lag. I am inclined to believe that the current grouping of CNB members will not vote for further interest rate hikes before the end of the year. Unless inflation continues to rise. It has to be said that by the end of the year we could be talking about inflation hitting 20%. If we look further ahead in time to somewhere in Q1 24, the forecasts are calling for 2.2% inflation, which we can consider as a long-term average or target.


Refinancing a mortgage now may be liquidating for some


Today, we are at a 7% interest rate, which is now liquidating for most families whose mortgages are ending. It doesn't get any easier for a new mortgage applicant. If interest rates started to fall and the client got 5% interest, the repayment on a 10 million crown mortgage would be 55,220 crown over 30 years. If we were complete pessimists and thought that this interest would not decrease over 30 years, we would also pay interest on a loan of 10 million. For comparison, at 1% interest, the repayment would be 32,163 crowns also for 30 years. In case I had the urge to buy a property right now, I would think about how to take advantage of the interest differential in another currency such as the euro, where the interest rate environment is a bit more friendly.


If it were to be an investment I would go abroad as well. The domestic market may see a slowdown in house price growth, so the property market may change. High mortgage payments may force families to sell properties. Strict requirements for new applicants may not be accepted by the bank and they may not get a mortgage. But if prices start to fall it may bring new buyers back into the market. In buying a domestic property, I would combine the price of the property and a friendlier interest rate environment and wait for Q3 2023.


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