Czech National Bank

December 17, 2013

The two-week Czech repo rate has been at 0.05% since a 20-basis point cut on November 1, 2012.  Previous cuts of 25 bps were implemented in September 2012, June 2012, May 2010, December 2009, August 2009, and May 2009.  From a peak of 3.75% prior to August 2008, it was also cut 25 bps that month, 75 bps in November 2008, 50 bps in December 2008, and 50 bps in January 2009.  With nowhere further to cut short-term interest rates, the Czech economy remained anemic in 2013 with a mounting fear of deflation.  Consequently, a new dimension of monetary easing was introduced in November analogous to what the Swiss National Bank has pursued since September 2011. 

Last month, Czech monetary officials announced an asymmetric unlimited intervention policy, capping kurona strength at 27 per euro but permitting depreciation should market forces so dictate.  A released statement after this month’s policy meeting reaffirmed that pledge.  The stance is to be kept until price pressures resurface along more acceptable lines.  The 0.05% interest rate, essentially a zero interest rate policy, will likely be maintained for at least another full year, if not beyond end-2014.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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