Czech Republic Monetary Policy

Czech Republic

Central Bank leaves rates unchanged, continues foreign exchange intervention

At its 7 May monetary policy meeting, the Czech National Bank (CNB) decided to leave the two-week repo rate unchanged at 0.05%, where it has been since November 2012. In addition, the Central Bank reiterated its commitment to intervening in the foreign exchange market in order to keep the Czech koruna at around CZK 27.0 per EUR. Market analysts had expected both decisions.

In the accompanying statement, the CNB pointed out that economic growth is gradually gaining momentum. The Bank also stated that this year growth will supported by stronger external demand on the back of healthier economic conditions in the Eurozone, the monetary stimulus and, according to the Bank, “to a lesser extent, also fiscal policy.” In addition, the Bank noted that it expects economic activity to improve in 2015, “boosted by a further slight increase in growth abroad and relatively robust growth in domestic demand in an environment of significantly expansionary fiscal policy.”

Regarding price developments, monetary authorities indicated that inflation, while low, is still at positive levels, mainly because of the weakening of the exchange rate. Moreover, the Bank pointed out that inflation will gradually rise in the coming months, mainly due to improving economic activity, better conditions in the labor market and, consequently, improving wages.

Economists polled by FocusEconomics expect that the Central Bank will maintain the two-week repo interest rate unchanged at 0.05% until the end of 2014, with an average forecast of 0.06%. For 2015, participants see the two-week repo rate at 0.42%.

Analysts expect the Czech koruna to trade at CZK 27.1 per EUR by the end of 2014. By the end of 2015, participants expect the koruna to trade at CZK 26.4 per EUR.

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