Wednesday, May 7, 2014

Czech holds rate, confirms use of FX intervention

    The central bank of the Czech Republic kept its benchmark two-week repo rate at 0.05 percent, as expected, and confirmed its commitment "to intervene on the foreign exchange market to weaken the koruna so that the exchange rate of the koruna against the euro is kept close to CZK 27/eur."
    The Czech National Bank (CNB) began using the exchange rate as an additional tool to ease monetary conditions to avoid deflation in November last year, 12 months after it cut the repo rate to the current level. The CNB has committed itself to defend the limit on the koruna until at least 2015.
    Inflation in March in the Czech Republic was steady for the third month in a row at 0.2 percent, well below the CNB's target of 2.0 percent, plus/minus one percentage point. In its inflation report from February, the CNB forecasts CPI of 2.1 percent this year and 2.2 percent in 2015.
    Since the decision to weaken the koruna's exchange rate on Nov. 7, 2013, the koruna currency has been steady around 27 to the euro, trading at 27.42 today compared with 27.33 end 2013.
    Gross Domestic Product in the Czech Republic jumped by 0.8 percent in the fourth quarter from the third, the third quarter in a row with expanding activity. On a year-on-year basis, GDP grew by 1.2 percent, the first quarter of growth since the fourth quarter of 2011.
    The CNB forecasts 2014 growth of 2.4 percent, up from a contraction of 0.9 percent in 2013, rising to 2.8 percent in 2015.


  1. Are the Bank's forecasts correct? Because in the statement, it commented that GDP is expected to grow 2.6% this year. According the their tables here:
    the economy will grow 3.3% in 2015. Could you please check where do this 2.4% estimate for 2014 comes from?

    1. Thanks Ricardo. I checked the 2.4 percent figure and now see that in fact it should have been 2.2 percent, i.e. the 2014 growth forecast was revised up to 2.6% from 2.2%. (See the bank's 3rd situation report from May7) I'll update the story to make that clear. Thanks for contacting me so I can correct the error.