Czech Republic Monetary Policy

Czech Republic

Czech Republic: Central Bank leaves rate on hold for 19th consecutive meeting

March 26, 2015

At its 26 March monetary policy meeting, the Czech National Bank (CNB) kept the two-week repo rate on hold at 0.05% for the 19th consecutive meeting. The Central Bank also reaffirmed its commitment to intervene in the foreign exchange market in order to keep the Czech koruna at close to CZK 27.0 per EUR until the end of 2016. The floor for the exchange rate was set in November 2013.

According to the Bank, the Czech economy slowed down slightly more than expected in the final quarter of 2014, due to the fact that inventories’ performance was worse than expected. Conversely, the remaining GDP components performed better than forecast. The Bank expects GDP growth to speed up gradually toward 3.0% in 2016, sustained by stronger external demand, accommodative monetary policy conditions, the effect of low oil prices, and a recovery in public investment. As for the labor market, the Bank pointed out that recent indicators sent mixed signals: while the share of unemployed persons dropped faster than forecast, wage growth was below expectations.

Regarding price developments, the Central Bank stressed that inflation was close to but above zero in February and noted that the risks to the Bank’s current inflation forecast were “anti-inflationary”. While the Central Bank restated that it will tolerate a temporary decrease in inflation, it also reiterated that it might change the level of the exchange rate cap to ensure that inflation converges toward the target rate in the longer term, pointing out that the probability of such a move had increased compared to the previous meeting, owing to the increased anti-inflationary risks to the inflation outlook.

The next monetary policy meeting is scheduled for 7 May.

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 27.6 per EUR at the end of 2015. For 2016, the panel expects the two-week repo rate to be 0.26% and see the koruna trading at CZK 27.1 per EUR.

Author: Teresa Kersting, Economist

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Czech Republic Monetary Policy Chart

Czech Republic Monetary Policy March 2015

Note: 2-week repo rate in %.
Source: Czech National Bank (CNB).

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