Czech Republic: Central Bank keeps rates unchanged, delays exit from intervening in exchange rate
July 31, 2014
At its 31 July monetary policy meeting, the Czech National Bank (CNB) decided to leave the two-week repo rate unchanged at 0.05% for the 14th consecutive meeting. The Central Bank also reiterated its commitment to intervening in the foreign exchange market in order to keep the Czech koruna at around CZK 27.0 per EUR. The floor for the exchange rate was set in November 2013.
In its accompanying statement, the Bank pointed out that the exceptionally low inflation in the Czech economy mainly reflects the subdued inflation in the Euro area. Consumer prices were flat over the same month last year June, which marked the lowest level since October 2009. Regarding conditions in the real sector, the Central Bank recognized that the weakening of the Czech koruna has supported rapid growth in domestic demand, which has had a positive impact in the labor market. In addition, the Bank pointed out that it expects faster economic growth this year than previously forecasted.
Finally, the CNB concluded that it considers that low inflation will persist in the economy, mainly due to subdued inflation in the Eurozone. As a result, the CNB said that, “it therefore decided to continue using the exchange rate as a monetary policy instrument at least until 2016.” According to most analysts, the Czech National Bank’s statement to postpone its exit from the intervention regime from the beginning of Q2 2015 until 2016, was the most relevant message at today’s meeting.
Author: Ricardo Aceves, Senior Economist