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Czech Republic Monetary Policy August 2019

Czech Republic: CNB stays put in August

On 1 August, the board of the Czech National Bank (CNB) unanimously decided to keep the two-week repo rate unchanged at 2.00%, marking the second consecutive hold and coming in line with market expectations. Moreover, the CNB also left both the Lombard and discount rates unchanged at 3.00% and 1.00%, respectively.

Inflation has lingered near the upper bound of the Bank’s 1.0%–3.0% tolerance band in recent months while economic activity has remained solid, powered by upbeat domestic demand. Although this could warrant tighter monetary conditions to some degree, survey-based indicators on manufacturing activity, in both the Eurozone and at home, point to industrial weakness. In addition, despite the Bank expecting inflation to remain above its 2.0% target in the coming quarters, it sees it easing at the start of next year, mainly due to previous policy tightening. Against this backdrop, the Bank was cautious and thus held rates.

In the accompanying statement, forward guidance was somewhat hawkish but in the press conference, policymakers indicated interest rate stability ahead. The Bank highlighted that the risks to its forecast are tilted to being “slightly anti-inflationary”, mainly reflecting a sharper slowdown in demand from the country’s main trading partners. Meanwhile, it noted that the impact from continued global trade conflicts and a disorderly Brexit continue to fuel uncertainty.

The next monetary policy meeting is scheduled for 25 September.

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