Higher interest rates won't affect demand of firms for loans

Czech firms do not expect higher interest rates to affect their demand for loans and their investment activity but despite that, the economy and industry will this year not grow as much as in 2017, the Confederation of Industry said today.

The Czech National Bank (CNB) raised interest rates today, the basic rate grew by 0.25 percentage point to 1.25 percent

"Raising of interest rates by the CNB is always to a certain extent reflected in loan costs of companies. However, this is not an important barrier for them now. We do not expect domand of firms for loans and their investment activity to be lower due to this at the moment," said the confederation's chief economist Bohuslav Cizek.

According to the latest survey among companies, which the Confederation of Industry makes together with the CNB, companies do not say that loans are less accessible to them.

They still invest and plan to continue also in the coming months. The higher interest rate thus at the moment has no fundamental impact on decisions of firms on investments and loans despite a certain increase in the price of loans, Cizek said.

"Companies, of course, follow many other factors which influence them. Among the factors are the current economic development, situation in new orders and other barriers which now burden on them, such as lack of workforce and growth in wage costs. Barriers and their structure, of course, differ according to the sector," Cizek said.

The Confederation of Industry realises that economic growth is not something to be taken for granted and that there are many uncertainties. It is concerned that this year's figures from the whole economy and the manufacturing industry will mostly reach lower growth levels than last year.

"The rate increase does not deviate from the current development and from our expectations of further development of the rates. In the past quarters, the CNB's measures did not have a shock effect on the economy, either," Cizek noted.

"We at the moment see bigger uncertainties and more important impacts around the global and US trade policy or negotiations about Brexit," he added.

The raising of the rates by the CNB will not cause lower demand for real estate or affect the interest rates offered by banks for their purchase, according to the answers of most representatives of real estate and developer companies addressed by CTK.

The toughening of conditions for providing mortgage loans by the CNB, to come in force in October, will have a major impact on this demand, they said.

Source: CTK