Thursday, March 26, 2020

Czech central bank cuts rate 75 bps in 2nd March easing

    The Czech Republic's central bank lowered its benchmark policy rate for the second time in two weeks and adopted additional measures to stabilize the country's economy, hit by the outbreak of the coronavirus, or Covid-19.
     The Czech National Bank (CNB) cut its 2-week repo rate by a further 75 basis points to 1.0 percent and has now cut it by 125 points this month as it makes a sharp U-turn after raising the rate by 25 points rate on Feb. 6 to curb rising inflation, its 9th rate hike since November 2017.
     In a statement, CNB said its Bank Board would announce the additional measures at a press conference later today.
     On March 16 CNB cut its 2W repo rate rate by 50 basis points at an extraordinary board meeting and said it was ready to cut rates further "should the economic situation so require."
     Although it didn't see any shortage of liquidity in the banking system at that point, as a preventative measure CNB amended rules introduced in October 2008 during the global financial crises and began liquidity-providing repo operations three times a week instead of once a week.
     Banks were provided liquidity at the 2W interest rate.
     It also revised its decision in May last year to raise the countercyclical capital buffer for banks and instead of raising it to 2.0 percent, it maintained it 1.75 percent.
     While it didn't consider it necessary to lower the buffer below 1.75 percent, it did say it was "ready to release the buffer immediately and fully were the banking sector's unexpected losses to rise, in order to support banks' ability to provide credit to non-financial corporations and households without interruption."
     It it expected banks to "refrain from any dividend payouts or any other steps that might jeopardise individual banks' resilience," until the acute and longer-term consequences of the coronavirus epidemic fade away.
    In addition to lowering the key 2W repo rate, CNB also cut the Lombard rate to 2.0 percent and the  discount rate to 0.05 percent.

     The Czech National Bank issued the following statement:


"At its meeting today, the Bank Board of the Czech National Bank lowered the two-week repo rate (2W repo rate) by 75 basis points to 1.00%. At the same time, it lowered the Lombard rate to 2.00% and the discount rate to 0.05%. The new interest rate levels come into effect on 27 March 2020.
The Bank Board also adopted additional measures to stabilise the domestic economy, which will be announced at a press conference attended by Deputy Governor Tomáš Nidetzký and Bank Board member Tomáš Holub. The press conference will be held at 3.15 p.m. as a videoconference for accredited journalists and will be streamed live on the CNB website."


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