Czech National Bank

March 29, 2018

Czech monetary policy underwent important modifications in 2017. At an extraordinary session on April 6, officials ended a 3-1/2 year experiment with an asymmetric exchange rate target to prevent the koruna with automatic intervention from strengthening past the 27 per euro level. The use of intervention as a discretionary policy tool was retained. Then on August 3rd, the key 2-week repo rate was lifted by 20 basis points to 0.25% in the first increase of any sort since September 2008. A followup second 25-basis point rate hike was done last November, and a third one happened at this year’s first review in early February.

Today’s policy review left the 2-week repo at 0.75%. However, in light of CPI inflation falling slightly below the 2% target center for the first time in over a year last month, officials tweaked their forward guidance, indicating that the next rate hike is unlikely before the end of this year rather than sometime during the year. A couple of hikes will likely happen in 2019.

The Bank Board assessed the risks to the inflation forecast at the monetary policy horizon as being slightly anti-inflationary. Risks in this direction stem mainly from inflation, which decreased faster at the start of this year than the Czech National Bank had expected. However, more gradual appreciation of the koruna compared to the forecast may act in the opposite direction in the quarters ahead.

Less inflation than assumed has been caused by a slower-than-anticipated pickup in wage costs and lessening food price pressure. Officials are upbeat in the released statement about growth because of the global economy’s improvement.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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