Czech Two-Week Repo Rate Left Steady at Record Low 0.75%

August 5, 2010

The Czech National Bank became the third European central bank today to announce no change in its key interest rate.  The decision was expected.  A report from policymakers implies that no rate increase will occur this year and suggests that the status quo may be maintained in the first half of 2011 as well.  From August 2008 through December 2009, seven rate reduction were implemented totaling 275 basis points, and one final cut of 25 bps this year was done in May.

On year Czech inflation of 1.2% in June was less than officials anticipated.  Policy-relevant core inflation is projected at 1.9% in 2011 and 2012, just below the central bank’s target of 2%.  The strength of economic recovery ahead was characterized as “modest.”  Real GDP in 1Q10 was just 1.1% greater than a year earlier, and a 1.8% projected growth rate is penciled in for 2011.  Such then accelerates to 2.9% in 2012.  While the Czech Republic has deficits of over 5% in its budget and more than 3% in its current account as a percent of GDP, the kurona has strengthened more than assumed, creating a disinflationary influence that may enable officials to retain its record low interest rate for close to an additional year.

The central bank statement today makes assumptions about oil prices (USD 78.60 in 2011 followed by USD 81.40 in 2012) and the euro’s value against the dollar (almost identical values of 1.20 in 2011 and 1.21 in 2012), which are of general interest to investors.

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



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