Czech Republic: Central Bank keeps two-week repo rate unchanged
September 26, 2014
At its 25 September monetary policy meeting, the Czech National Bank (CNB) decided to leave the two-week repo rate unchanged at 0.05% for the 15th 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, CNB said that data at the start of the third quarter from the real economy point to robust growth in industrial production, which is supported by double-digit growth in orders from abroad. An improvement was also seen in retail sales, primarily non-food products. The Bank went on to say that, “overall, these indicators suggest that the rise in consumption and investment seen in the last two or three quarters is of a longer-lasting nature.”
Regarding price developments, the Bank pointed out that, as expected, the Q3 acceleration in headline inflation was mainly due to higher prices for food and smaller declines in natural gas prices for households. In addition, producer prices are recovering gradually backed by a weaker koruna. The Bank added that, “risks in the anti-inflationary direction stem from developments abroad, more specifically from lower economic outlook and more subdued inflation in the euro area and from a lower outlook for world prices of food and oil.”
Finally, the CNB concluded that it considers that low inflation will persist in the economy. As a result, the CNB said that, “it therefore decided to continue using the exchange rate as a monetary policy instrument until 2015 Q3.”
Author: Dirina Mançellari, Senior Economist