Czech National Bank Leaves Interest Rates Unchanged

June 23, 2010

As expected and following an unexpected easing on May 7 of 25 basis points, the CNB retained a 0.75% target for its two-week repo, flanked by a discount rate of 0.25% and a Lombard Rate of 1.75%.  The vote to ease in May had been split 4-2 and was the first change of any sort since December 2009.  From a peak 2-week repo rate of 3.75%, such had been reduced by 25 bps in August 2008, 75 bps in November 2008, 50 bps in December 2008, and 50 bps in February 2009.  Three smaller cuts of 25 bps each ensued in May, August and December of 2009 before the aforementioned final cut of same size last month.

With a budget deficit of between 5% and 6% of GDP, officials have to be wary of contagion from the Euroland sovereign debt crisis.  The Czech Republic also has a current account deficit roughly equivalent to 2.5% of GDP.

Real GDP has begun to recover, expanding 2.0% at an annualized rate last quarter and by 1.1% from the first quarter of 2009.  GDP had contracted about 3% between 4Q08 and 4Q09.  CPI inflation is creeping higher, printing a 12-month pace of 1.2% in May versus 0.7% in March, and may be boosted additionally by higher indirect taxes.  But officials have been expecting inflation in 2011 to run slightly under target.

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



Comments are closed.