The Czech central bank on Thursday left its key interest rate unchanged for a twenty-fifth consecutive policy session and affirmed its currency exchange rate commitment.
The Czech National Bank Board held the two-week repo rate at 0.05 percent, in line with economists’ expectations. The discount rate was kept at 0.05 percent and the lombard rate at 0.25 percent.
The bank repeated its commitment to intervene on the foreign exchange market, if needed, to weaken the koruna so that the exchange rate of the currency against the euro is kept close to CZK 27/EUR. The central bank reiterated that the exchange rate commitment is one-sided.
The CNB had set the exchange rate floor in November 2013. In September last year, the bank forecast that the exchange rate would be used as a monetary policy instrument until the end of 2016.
Inflation has remained well below the bank’s 2 percent target for more than two years. In December, inflation was just 0.1 percent, unchanged from the previous month. The average rate of inflation reached 0.3 percent in 2015, which was the lowest since the year 2003.
Policymakers are set to hold a press conference later on Thursday, when the bank’s latest inflation forecasts will be unveiled. Falling oil prices make it unlikely that inflation will rise to the bank’s 2 percent target this year.
Given such circumstances, Capital Economics economist William Jackson expects the tone of today’s post-meeting press conference and accompanying statement to be dovish.
“And we may see a nod towards looser monetary conditions via an extension of the MPC’s commitment to keeping the exchange rate ceiling in place, possibly to H1 2017, from H2 2016 at present,” Jackson said.
“We do think monetary conditions will remain extremely accommodative both this year and next.”
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