Czech National Bank

August 3, 2017

Although anticipated by market participants, the Czech National Bank raised interest rates today for the first time since February 2008. Monetary officials four months ago had stopped using automatic intervention to prevent the koruna from appreciating beyond 26.0 per euro. Intervention still occurs but not in a prescribed automatic and unlimited way. The Bank’s two week repo rate was raised to 0.25% from 0.05%, its prior level since November 2012, and the Lombard rate was doubled to 0.50%. A statement released after the rate decision updates macroeconomic forecasts.

Compared to the previous forecast, the outlook for inflation and market interest rates is almost unchanged. However, the GDP growth forecast has shifted higher, due largely to faster expected household consumption growth and investment growth.

The CNB Bank Board assessed the risks to the new inflation forecast at the monetary policy horizon as being slightly inflationary. This is because the exchange rate may be weaker than forecasted in the quarters ahead owing to the closing of koruna positions by financial investors amid the absence of a counterparty. The timing of further steps in raising interest rates will be conditional on the evolution of all key macroeconomic variables, including the exchange rate of the koruna.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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