Czech Republic Monetary Policy

Czech Republic

Czech Republic: Central Bank cuts interest rates to new record-low

September 27, 2012

At its 27 September monetary policy meeting, the Czech National Bank (CNB) cut the two-week repurchase rate by 25 basis points to a record-low 0.25%, in a decision that was broadly expected by the market. The move follows on a pause in the easing cycle in the previous meeting, after the Bank had cut rates at its monetary policy on 28 June. At the current level, the two-week repurchase rate is 0.50 percentage points below the European Central Bank's main policy rate. In addition, the Bank lowered the Lombard rate, which is a ceiling for short-term interest rates, by 75 basis points to 0.75% and the discount rate by 15 basis points to 0.10%. Monetary officials stated that, on the monetary policy horizon, inflation will linger above the Bank's inflation target due to tax increases, as part of the government's efforts to cut the fiscal deficit. Moreover, the Bank acknowledged that the economy contracted more than expected in the second quarter, while data for July, particularly for industrial production, construction and retail sales, continue to show persistent weakness in economic activity. Furthermore, in the press conference following the interest rate decision, CNB Governor Miroslav Singer stated that the Bank may start using the exchange rate as a monetary policy in order to implement further monetary easing, as the Bank is now running out of conventional tools given that the policy rate is near zero. The next monetary policy meeting is scheduled for 1 November.

Author:, Senior Economist

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