Unchanged Czech Central Bank Rate

September 23, 2010

The Czech National Bank Board voted to retain a two-week repo rate target level of 0.75% as analysts had predicted.  Although this decision was the same as at prior meetings on August 5 and June 23, those votes were unanimous, while today’s contained a single dissenter, who favored a 25-basis point increase.

A document published by the central bank anticipates that CPI inflation will hover near the 2% target throughout the policy horizon period and foresees policy not tightening until the second half of next year and then only gradually.  GDP growth quickened last quarter, climbing 3.8% at an annualized rate and 1.8% in the four quarters from 2Q09.  CPI inflation stood at 1.9% in both July and August, and unemployment is presently below but near to 9.0%.  Deficits in the Czech current account and budget amount to almost 3.5% and 5.5%, respectively.

The key Czech interest rate has been at 0.75% since a cut of 25 basis points on May 7.  That was the only ease this year.  Beginning with a 25-bp cut in August 2008, the rate was slashed from a prior peak of 3.75% by 150 basis points in 2008 and another 125 basis points in 2009.  There have been just two 25-bp reductions over the past year, however, one in December 2009 and the aforementioned other this past May.  At 0.75%, the current rate lies 25 basis points underneath the ECB refinancing rate of 1.0%.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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