Accommodative Czech Monetary Policy to be Retained through 2016

May 7, 2015

There are two elements to this policy.  First, a technical zero interest rate policy has been in place since the central bank’s two-week repo rate was cut by 20 basis points to 0.05% at the beginning of November 2012.  This level will be retained until late 2016 at least, that is the end of the Czech National Bank’s policy horizon.  So will the second element of the policy stance according to a statement following the latest Board meeting.  A one-sided policy to cap kurona strength against the euro was imposed initially in November 2013 to enable authorities to loosen policy further after nominal interest rates had fallen to zero.  The statement, as before, reserves the right to modify the FX policy limit in the future if needed and indicates that eventual normalization of interest rate policy will not be accompanied by an engineered return of the the kurona to levels before the currency policy was imposed.  New macroeconomic policies have been crunched.  Real GDP is expected to rise 2.6% this year and by more than 3.0% in 2016.  Headline inflation is expected to hover near zero this year but climb near to the 2% target during 2016.

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



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