Czech Republic Monetary Policy

Czech Republic

Central Bank leaves interest rate unchanged

At its latest monetary policy meeting held on 24 March, the Central Bank left the two-week repo interest rate unchanged for the seventh consecutive month at a record low of 0.75%, in a decision broadly in line with market expectations. Monetary authorities have kept the policy rate unaltered since May 2010, when the Bank last cut the two-week repo rate by 25 basis points. Monetary officials stated that, according to their forecast, headline inflation remains in line with the inflation target (2.0% 1.0 percentage point) over the near term monetary policy horizon. However, authorities acknowledged that inflation risks now point to the upside, fuelled by higher world commodity prices as well as by the VAT increase in 2012 and its impact on inflation expectations. The next monetary policy meeting is scheduled for 5 May. Meanwhile, Central Bank Governor Miroslav Singer has recently stated that monetary authorities do not expect to alter the Bank's monetary policy in light of the recent rate increase by the European Central Bank (ECB), as it is too early to evaluate whether this ECB move will fan a strengthening of the koruna. The ECB lifted its key rate from 1.00% to 1.25%, widening the negative interest rate differential between the Czech National Bank and the European Central Bank by 50 basis points.

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