Czech National Bank More Upbeat Regarding Economic Trends but No Change in Policy

June 25, 2015

The latest CNB Board’s policy statement conveys three messages:

  1. The Czech economy is experiencing stronger growth and faces a reduced deflationary risk.
  2. Board members voted unanimously not to change monetary policy settings.
  3. The commitment not to tighten policy settings before the second half of 2016 remains intact.

The Czech interest rate has been at 0.05% since the last in a series of eleven cuts, which was made in November 2012.  The 27 koruna per euro ceiling was imposed in November 2013.  A similar cap on the Swiss franc’s euro cross in September 2011 but abandoned this past January in a move that shocked markets.  The koruna’s cap will be enforced with automatic intervention in unlimited volume.  The foreign exchange policy is asymmetric, that is koruna depreciation from the 27/euro level will not be resisted. 

On-year GDP growth accelerated to 4.2% last quarter, and the latest 12-month rate of CPI inflation of 0.7%, although higher, still lies below the goal of 2% by late 2016.  Summarizing economic developments since the previous meeting, the Board noted,

Annual GDP growth was considerably above the forecast in 2015 Q1 and inflation was also higher than forecasted in May. The average wage increased slightly faster than expected in Q1, owing to developments in the business sector. The seasonally adjusted share of unemployed persons fell somewhat more sharply compared to the forecast. However, the output of the domestic economy is still below potential.

The Bank Board assessed the balance of risks to the current inflation forecast as being balanced at the monetary policy horizon. This means that even in the light of the data which have become available since its previous monetary policy meeting, the assumption that inflation will merely approach the target from below at the monetary policy horizon remains in place.

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



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