Czech Republic Monetary Policy

Czech Republic

Central Bank stays put for 16th consecutive month

At its 3 November monetary policy meeting, the Czech National Bank left the two-week repurchase rate unchanged at a record low of 0.75%, in a decision widely expected by the market. Monetary authorities have not altered the main policy rate since May 2010, when officials cut it from 1.00% to 0.75%. At the current level, the two-week repurchase rate remains 50 basis points below the European Central Bank's main policy rate, which was recently lowered by 25 basis points to 1.25%. The Central Bank stated that inflationary pressures will remain at bay over the near-term policy horizon as pressures from the domestic side of the economy are subdued and global commodity prices are showing signs of moderation. The Bank acknowledged that inflation will rise temporarily to just below 3% in 2012, owing to the VAT rate increase that will become effective in January 2012, but see it falling back below the Bank's target at the start of 2013. In addition, monetary officials argued that economic growth will continue to weaken as a result of the ongoing slowdown in the Eurozone, which is the country's main export destination. The next monetary policy meeting is scheduled for 21 December.

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