Czech Republic: Central Bank leaves interest rate unchanged as economy remains in recession
February 6, 2013
At its 6 February monetary policy meeting, the Czech National Bank (CNB) left the two-week repurchase rate unchanged at a record-low of 0.05%, in a decision in line with market expectations. However, at this meeting some market participants had expected that the CNB would provide a more detailed hint about using non-standard monetary policy tools if required. The Central Bank had cut the main monetary policy rate by a total of 70 basis points during 2012.
In its accompanying statement, monetary officials underlined that inflation will remain close to its 2% target this year owing to tax increases. For 2014, the Central Bank foresees that inflation will fall below the target, once the impact of the tax rise fades. Moreover, the Bank acknowledged that the economy contracted in 2012, reflecting a deterioration in domestic demand, which was dragged down by the government's strong austerity program. In 2013, however, the Central Bank expects the economy to gradually recover. Nonetheless, monetary authorities stressed that uncertainty about the extent and impact from the austerity measures on the overall economy remains.
Author: Ricardo Aceves, Senior Economist