Czech National Bank 2-Week Repo Rate Left at Cyclical Low of 0.75%

August 4, 2011

The fifth of eight scheduled Policy Board meetings in 2011 did not result in an interest rate change, which was the outcome predicted by analysts.  Like the prior two meetings on May 5 and June 23, two of seven policymakers preferred to raise the key rate by 25 basis points.  However, the five-person majority seems rock-steady, calling inflation risks balanced around a baseline view that policy-relevant core inflation will hover near the 2% target.  Because of an increase in value added taxation and prior commodity price pressures, total inflation is projected to rise to slightly above 3% but only temporarily.  Projected GDP growth in 2012 was in fact revised down by 0.6 percentage points to 2.2% because of the fiscal restraints.  officials are sticking to the view that a gradual rise of central bank rates will probably start late this year or in early 2012, but they conceded that the rate path may lie somewhat below the trajectory imagined earlier.  A series of rate reductions from August 2008 to May 2010 cut the key Czech interest rate from 3.75% to 0.75%.  The Czech manufacturing purchasing managers index in July printed at 53.4, down from 55.1 in June and its lowest reading since January 2010.  The jobless rate is a touch above 8%.

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



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