Czech National Bank keeps rates unchanged

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Photo by V_E/Shutterstock.com

The Bank Board of the Czech National Bank (CNB) decided to keep interest rates unchanged at its latest meeting. The two-week repo rate thus remains at 2%, the discount rate at 1% and the Lombard rate at 3%. Five members voted in favour of the decision, while two others voted for increasing rates by 25 basis points.

The Czech National Bank building in Prague. Photo by V_E/Shutterstock.com

Domestic inflation will stay in the upper half of the tolerance band around the inflation target in the coming quarters, due to only gradually abating inflation pressures, rapid growth in prices and the impacts of changes to indirect taxes, the CNB said on November 7.

Domestic inflation pressures will gradually ease further over the forecast horizon as a result of slowing wage growth and a renewed acceleration of labor efficiency

The growth of the domestic economy will slow in the rest of this year due to weakening external demand. GDP growth will not return close to the potential output growth rate of 3% until 2021.

Solid growth rates of household and government consumption will contribute to growth in economic activity. Investment growth will initially stay at the low rates observed in mid-2019, the CNB said. 

The bank puts the inflation outlook for next year in its new quarterly economic outlook higher due to stronger domestic inflation pressures, a weaker exchange rate and greater effects of tax changes. The 2020 growth forecast is cut to 2.4%. The koruna will appreciate more gradually against the euro. 

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