The growth of money in circulation makes reality more expensive, analysts warn of a bubble
The massive inflow of new money into the economy was triggered by the Czech National Bank. As part of foreign exchange interventions in the fight for the weak Czech currency, it released hundreds of billions of new crowns. According to economists, these, together with historically low interest rates, support speculative demand in the real estate market and have pushed their prices to post-crisis peaks.
According to some analysts, the Czechia is experiencing a mortgage mania, and signals or emerging real estate bubbles are appearing in many places. “Not only in the Czech Republic has a relaxed monetary policy been behind the growing interest in real estate,” recalls Petr Sklenář, an economist at J&T Banka. In Prague alone, the prices of flats at the Institute of Planning and Development of Prague rose by an average of fourteen percent last year, of which about a third of sales were purchases for investment.
According to the CNB, the economy’s appetite for credit is significantly increasing. “However, the development of the money volume has also been affected in recent months by affected market conditions associated with a high inflow of foreign capital before the end of the exchange rate commitment,” said Denisa Všetíčková, a CNB spokeswoman, adding that this effect would gradually subside.
Experts warn that high money growth could lead to a reduction in savings in the long run. “Suddenly the money spins so much that the banks will not be able to withdraw it, even if they raise central interest rates sharply. As a result, high inflation will come, “says Aleš Michl, founder of the Quant fund, which specializes in investing based on money supply growth.