Czech National Bank

May 3, 2018

The Czech two-week central bank repo rate was left unchanged at 0.75% by a six to one vote and will continue to be flanked by a 0.05% deposit rate and a 1.50% Lombard rate. The lone dissenting vote favored a 25-basis point hike in the 2-week repo to 1.0%. Policy normalization began exactly one year ago with the ending of an intervention-enforced cap on koruna strength at 26.0 per euro that had been in place since November 2012. In August 2017, monetary officials engineered the first rise of the 2-week repo rate since February 2008 by increasing such 20 basis points. Two 25-basis point hikes followed in November 2017 and then this past February.

In a released statement, the Bank Board qualitatively explained its latest thinking:

Compared to the previous forecast, the inflation forecast for this year has been lowered, but at the monetary policy horizon the inflation outlook remains almost unchanged. The forecasted growth of the Czech economy has been increased slightly for both years. The path of interest rates is little changed. The forecast for the koruna-euro exchange rate is slightly weaker for this year but slightly stronger for next year.

Czech inflation is currently running a little below the 2% target, but faster wage growth and a rise of more than 3% in GDP point to convergence on the target. The koruna/euro exchange rate is presently 25.53, but appreciation in the koruna is projected to become more modest. “Consistent with the forecast is broad stability of market interest rates initially, followed by further growth in rates from late 2018/early 2019. According to the forecast, interest rates will thus move towards their long-run neutral level in the course of next year. Continued very accommodative monetary policy of the European Central Bank will remain a significant barrier to a faster increase in domestic interest rates.”

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



Comments are closed.