Czech Republic: CNB stays put again in September
September 23, 2020
At its 23 September meeting, the board of the Czech National Bank (CNB) unanimously decided to keep the two-week repo rate unchanged at 0.25%, aligning with market expectations and marking the third consecutive hold. In addition, the CNB kept the Lombard and discount rates at 1.00% and 0.05%, respectively.
The evolution of both economic activity and inflation, which was broadly in line with the CNB’s macroeconomic forecasts, underpinned the Bank’s decision to stand pat. Going forward, the Bank sees rates remaining stable until mid-2021 before rising gradually during H2 2021 on the back of an economic recovery. Meanwhile, inflation is projected to remain above the Bank’s 1.0%–3.0% tolerance range for the remainder of 2020, before moving towards its 2.0% target in the second half of next year due to significant output gaps.
Looking ahead, the Bank highlighted in its communiqué that risks to the new forecasts remain substantial. Uncertainty ahead over a resurgence of Covid-19 cases domestically and abroad, and the subsequent need to resort to more extensive quarantine measures, represent the main downside risks. Meanwhile, additional budgetary measures to support the domestic economy would act in the opposite direction. Against this backdrop, and considering the larger-than-expected rate cut delivered in May, staying pat is a likely scenario for the Bank going forward, although some panelists still see further easing.
The next meeting is scheduled for 5 November.