Romanian and Czech Monetary Policy Reviews

August 6, 2020

The National Bank of Romania enacted its third policy interest rate reduction of 2020. Following up on cuts of 50 basis points in March and 25 bps, the rate was reduced by another 25 basis points to 1.50%. In justifying this step, a released statement states that “given the transmission lags of the lower policy rate impulses, such a calibration of the monetary policy conduct is likely to provide an underpinning to the recovery of economic activity over the projection horizon with a view to bringing and strengthening over the medium term the annual inflation rate in line with the 2.5 percent ±1 percentage point inflation target, while safeguarding financial stability.” GDP contracted sharply last quarter in Romania and many other economies.

The Czech National Bank’s two-week repo rate had previously been slashed by two full percentage points to 0.25% in three steps between mid-March and early May. Real GDP in that economy will probably contract at least 20% this year according to a released statement today. While not cutting the interest rate further, monetary officials opined in the statement that a rise in market rates is unlikely before the second half of next year and projected that in-target inflation would prevail both next year and in 2022.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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