Czech National Bank Leaves Interest Rates As Such Were

December 22, 2010

The key two-week repo rate was left at 0.75% as widely expected and will continue to be flanked by a 0.25% discount rate and a 1.75% Lombard Rate.  At a press conference today, officials made several points.  Eight cuts from August 2008 through May 2010 reduced the two-week repo rate by a cumulative 300 basis points.  The first and final moves were each by 25 basis points.  An initial rate increase is unlikely until the second half of 2011.  Consumer prices advanced 2.0% in the year to November, and core inflation is significantly lower than that.  Officials are committed to a 2% inflation target to be met in 4Q11.  The Czech economy is growing again, with a robust 4.1% annualized pace last quarter (and 2.8% between 3Q09 and 3Q10), but officials anticipate a slower pace of about 2%in 2011 and 2012.  The vote this month of 6-1 included one dissent cast in favor of a 25-basis point rate increase.  Votes at the previous two policy meetings also had dissenters favoring a rate hike, but Euroland’s sovereign debt crisis creates an additional reason for proceeding cautiously with any tightening.  With a central bank rate that’s 25 basis points lower than the ECB refinancing rate, the koruna has recently eased somewhat against the euro and is softer than its value a year ago against the dollar. Exchange rate depreciation is one upside risks to the inflation forecast; overall price risks are deemed to be balanced.

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



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