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Financial News: Czech Central Bank Holds Rate Unchanged For Second

Czech Central Bank Holds Rate Unchanged For Second Time

08/01/2019 - 10:17:00 (RTTNews)

(RTTNews) - The Czech National Bank on Thursday left its key interest rate unchanged for a second policy session in a row, as expected, after raising it by a quarter-point in May.

The Bank Board, led by CNB Governor Jiri Rusnok, decided unanimously to keep interest the two-week repo rate at 2 percent, the bank said in a statement. The discount rate was maintained at 1 percent and the lombard rate at 3 percent. The bank expects inflation to stay above its 2 percent target in the coming quarters, yet remain within the tolerance band, due to lingering strong domestic inflation pressures and high growth in administered prices and food prices.

Inflation is projected to start decreasing at the start of next year, due to monetary policy tightening and slower rise in administered prices, and reach near the target in the second half of the year.

That said, the slowing in inflation will be hampered throughout next year by the impacts of changes to indirect taxes, the bank said.

The CNB raised the inflation forecast for the third quarter of next year to 2.2 percent from 2 percent and that for the final three months of 2020 to 2.1 percent from 2 percent. Economic growth is expected to accelerate slightly over the next two years from the 2.6 percent forecast for this year. Growth is expected to be driven by all components of domestic demand except inventories.

The growth forecast for this year was raised to 2.6 percent from 2.5 percent and the projection for next year to 2.9 percent from 2.8 percent. The economy was forecast to expand 3 percent in 2021.

The unemployment rate, which is at a record low, is not expected to fall further, the bank said.

The central bank expects the koruna to firm gradually this year and the exchange rate appreciation to slow next year due to a decrease in the interest rate differential vis-à-vis the euro area. Domestic market interest rates are forecast to rise modestly initially and to fall next year due to deeply negative interest rates in the euro area. Policymakers assessed that the balance of risks to the forecast at the monetary policy horizon were slightly anti-inflationary mainly due to the likelihood of a more pronounced slowdown in demand growth in the Czech Republic's main trading partner countries, the CNB said.

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