Czech Republic Monetary Policy

Czech Republic

Czech Republic: Central Bank keeps two-week repo rate on hold

December 17, 2014

At its 17 December monetary policy meeting, the Czech National Bank (CNB) decided to leave the two-week repo rate unchanged at 0.05% for the 17th 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.

According to the Bank, in the third quarter, the economy grew slightly less than forecast in annual terms. In line with the forecasts, all components of domestic demand contributed positively to growth. In contrast, the external sector made a slight negative contribution as a result of increasing imports. The ongoing improvement of the domestic economy continues to have a positive effect on the labor market. In fact, total employment is growing faster than expected. CNB added that, “next year the economy is forecasted to record the same growth rate as this year.”

Regarding price developments, the CNB pointed out that although the recent sharp drop in oil prices should be seen as a positive supply shock for economic growth, “its short-term downward effects on prices do not come at an appropriate time from the perspective of inflation expectations.” Looking ahead, growth in consumer prices is expected to accelerate next year and return to the Bank’s 2.0% target at the beginning of 2016.

For 2015, FocusEconomics Consensus Forecast panel participants see the two-week repo rate at 0.05%. Analysts expect the Czech koruna to trade at CZK 27.4 per EUR at the end of 2015. For 2016, the panel expects the two-week repo rate at 0.54% and see the koruna trading at CZK 26.8 per EUR.

Author:, Senior Economist

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Czech Republic Monetary Policy Chart

Czech Republic Monetary Policy December 2014

Note: BoK Base Rate in %.
Source: Czech National Bank (CNB).

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