Czech National Bank Keeps Existing Policy Stance as Expected

September 25, 2014

There are two elements to Czech monetary policy.

  1. A virtual zero interest rate policy (ZIRP), with the two-week repo rate pinned at 0.05%.
  2. A one-side exchange rate commitment, enforceable by intervention when necessary, that prevents the koruna from strengthening beyond 27 per euro.

The 0.05% repo rate level has existed since a 20-basis point cut in November 2012 that culminated eleven down-moves stretching back to the first reduction in August 2008 from 3.75% to 3.50%.   When the 0.05% interest rate level proved insufficient amid declining inflation, the exchange rate cap was begun a year later in November 2013.  These components of monetary stimulus were reaffirmed in a statement released today.  Czech GDP dipped 0.1% on quarter in 2Q but was 2.7% above its year earlier level.  Unemployment is still above 7%, and inflation lies near 0.5%.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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