A Dovish Statement from the Czech National Bank

February 5, 2015

Czech National Bank officials decided unanimously to retain a virtual zero interest rate policy (0.05% to be precise) and an exchange rate policy that is using intervention as needed to asymmetrically prevent the koruna from appreciating beyond 27 per euro.  Moreover, “The Czech National Bank stands ready to move the level of the exchange rate commitment if there were to be a long-term increase in deflation pressures capable of causing a slump in domestic demand, renewed risks of deflation in the Czech economy and a systematic decrease in inflation expectations,” according to today’s released statement.  The report adds, “by comparison with the previous forecast, expected domestic interest rates are considerably lower next year, reflecting the extension of the expected use of the exchange rate as a monetary policy instrument in reaction to anti-inflationary pressures from abroad.”  Officials project that there will be no policy tightening before end-2016.  The statement revises growth somewhat higher and inflation lower, with monetary policy-relevant CPI not rising back to 2.0% until the end of next year.  Officials stress that the unknown impact of ECB quantitative stimulus introduces even more uncertainty into the economic and financial market outlook.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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