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Czech Republic Monetary Policy March 2020

Czech Republic: CNB cuts rates in emergency meeting; introduces preventive measures in March

At an extraordinary meeting held on 16 March, the board of the Czech National Bank (CNB) unanimously decided to axe the two-week repo rate by 50 basis points to 1.75%, reverting its previous decision on 6 February when it unexpectedly hiked the rate by 25 basis points to 2.25%. The decision came before 26 March, when the meeting was originally scheduled to be held. In addition, the CNB lowered both the Lombard and discount rates by 50 basis points to 2.75% and 0.75%, respectively. Moreover, it introduced further measures, more of preventive nature, as the banking system does not currently face capital and liquidity shortages.

The decision to cut the rate and implement said preventive measures was aimed to mitigate the negative economic impacts from the coronavirus outbreak. Measures included enhancing liquidity-providing repo operations by announcing them three times per week instead of on a weekly basis; increasing the countercyclical capital buffer rate from 1.75% currently to 2.00% effective July 2020, though leaving the option open to reduce it if required; and recommending banks to refrain from paying out dividends until the pandemic fades.

Looking ahead, the CNB stressed that it remained ready to further cut rates if necessary, and would also intervene in the FX market amid any excessive fluctuations of the exchange rate, in line with the country’s managed float system.

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