Czech Monetary Policy Still on Hold

May 5, 2011

The Czech National Bank did not follow last month’s ECB rate hike cue but rather by a 5-2 vote retained a two-week repo rate of 0.75% and respective deposit and Lombard rates of 0.25% and 1.75%. These interest rate levels represent cyclical lows and have been in place since a final cut of 25 basis points one year ago on May 6, 2010. That reduction culminated 300 basis points of easing administered in eight steps beginning in August 2008.

A statement posted today on the central bank web site indicates that two policymakers recommended a 25-basis point rate increase.  Earlier meetings in February and March drew three dissents and a single dissent, respectively.  The Policy Board majority continues to believe that headline and policy-relevant inflation will hover near the target this year and next and that risks associated with that baseline view are balanced.  Economic growth is being restrained by fiscal restraint, will barely average 2% in 2011-2, and is unlikely to exceed 3% in either year.  Consumer prices in March were just 1.7% higher than a year earlier.  A firm exchange rate helps to contained imported inflationary pressure.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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