The Czech National Bank (CBN), which earlier today left its policy rate unchanged at 0.05 percent, said interest rates will remain at the current level of technically zero "over a longer horizon until inflation pressures increase significantly," repeating its forecast from March.
The Czech Republic's central bank also repeated that it was "ready to use foreign exchange interventions if further monetary policy easing becomes necessary."
In its new economic forecast, the CNB cut its growth forecast for this year and next but raised its inflation forecast slightly.
However, the CNB does not expect an increase in inflationary pressures and sees no tangible risks of such an increase, with market interest rates easing slightly this year and then rising in 2014.
Headline inflation is expected to be slightly below the central bank's 2.0 percent target this year and next year with monetary-policy relevant inflation close to the bank's lower tolerance band this year (the CNB has a one percentage point tolerance band) and then slowly return to target next year.
In the new forecast, headline inflation in the second quarter of 2014 is forecast at 1.8 percent, up from the previous forecast of 1.7 percent, and for 1.9 percent in third quarter 2014, up from 1.8 percent.
In March, inflation in the Czech Republic was steady at 1.7 percent from February.
The Czech economy is forecast to shrink by 0.5 percent this year, up from the previous forecast for a 0.3 percent decline, due to fiscal consolidation and a gradual recovery in external demand.
In 2014 the Gross Domestic Product is forecast to grow by 1.8 percent, down from the previous forecast of 2.1 percent.
In the fourth quarter of 2012, the Czech GDP shrank by 0.2 percent, its sixth quarterly contraction in a row, for an annual fall of 1.7 percent, up from a fall of 1.5 percent in the third quarter.
In 2012 the Czech economy shrank by 1.2 percent.