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Financial News: Czech CB Holds Rate Steady After Hike

Czech CB Holds Rate Steady After Hike

12/21/2017 - 08:44:00 (RTTNews)

(RTTNews) - The Czech central bank left its key interest rate unchanged on Thursday, in its final policy session for the year, after hiking it in November amid high inflation and strong growth.

The bank board decided to hold the two-week repo rate at 0.50 percent, the Czech National Bank said in a statement. The decision was in line with economists' expectations.

Five members voted in favor of the latest decision, while two members voted for raising the two-week repo rate to 0.75 percent, the bank said.

"The Bank Board assessed the risks to the current inflation forecast as being balanced and insignificant," the bank said in a statement. "Thus, the upside risks identified at the November monetary policy meeting have not materialized so far."

These risks are connected with the possibility of slower-than-forecast exchange rate appreciation due to koruna market overboughtness and the possibility of stronger domestic inflation pressures, the bank added.

The rate was raised by 25 basis points in November. In August, the bank had raised the key rate by 20 basis points, which was the first hike since February 2008 and the first change in interest rates since November 2012, when the repo rate was cut to technical zero.

"Overall, the timing of further steps in raising interest rates remains conditional on the evolution of all key macroeconomic variables, including the exchange rate of the koruna," the CNB said.

The CNB had abandoned a three-and-a-half-year long ceiling on the appreciation of the koruna in April.

The bank left the Lombard rate unchanged at 1 percent and kept the discount rate unchanged at 0.05 percent.

In a statement, the bank said inflation is expected to remain above its 2 percent target for most of 2018 and expected to return to target only late next year and early 2019.

Capital Economics expects more rate hikes in the coming year as inflation is likely to remain above target.

"Today's decision is clearly just a pause in the tightening cycle," Capital Economics economist Liam Carson said.

"With labor shortages continuing to mount, we think that wage growth has further to rise."

In November, inflation eased to 2.6 percent from 2.8 percent, but remains above the bank's target of 2 percent.

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