Czech Republic: Central Bank stays put in May
May 3, 2018
At its 3 May meeting, the Bank Board of the Czech National Bank opted to leave the two-week repo rate unchanged at 0.75%. It also kept the Lombard rate at 1.50% and the discount rate at 0.05%, in line with market expectations. Six members of the Board voted in favor of this position, while one dissenter called for a 25-basis point hike of the repo rate.
The decision was taken against a backdrop of robust economic growth and a tight labor market, which has spurred rapid wage growth in recent months. Nonetheless, the Bank decided to stay put amid moderating inflation in February and March; inflation in both of those months came in below its 2.0% target. Departing from the assessment it made at the previous meeting on 29 March, the Board now sees inflation remaining below target for the rest of the year and only returning closer to target until mid-2019.
The Bank expects the continued appreciation of the koruna this year, partly driven by the positive interest rate differential against the Euro area and the ongoing quantitative easing program undertaken by the ECB. Interestingly, the Bank downplayed the recent koruna weakness. It did announce, however, that an interest rate hike is possible by the end of the year, considering the strong economic performance expected ahead and a weaker-than-projected appreciation of the koruna.
The next monetary policy meeting is scheduled for 27 June.
Author: Javier Colato, Economist