Czech National Bank Adopts Near-Zero Interest Rate Policy

November 2, 2012

A 20-basis point cut of the Czech two-week repo rate to 0.05% was announced by the CNB on Thursday, November 1.  Two of seven policymakers dissented in favor of no change.  A statement from officials defended this adoption of virtual ZIRP, predicting that core CPI inflation would hover in the lower half of its 1-3% target range through the policy-relevant horizon.  This cut was the third since June.  The two-week repo had been at 0.75% previously since May 2010.  Altogether this was the eleventh cut since August 2008, before which the key rate had been at 3.75%. 

Officials also cut their Lombard rate an discount rate.  The former was reduced 25 basis points to 0.5%, and the latter was halved to 0.05%.  Officials said these very low rates are likely to be kept “until “inflation pressure increase significantly.”

The central bank projects a 0.9% contraction of GDP in 2012 and only a 0.2% rebound in 2013.  The koruna steadiness allows officials to concentrate their efforts for now on promoting an economic recovery.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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