Česká národní banka

Minutes of the Extraordinary Bank Board Meeting on 9 April 1999

Present at the meeting: Josef Tošovský (Governor), Oldřich Dědek (Vice-Governor), Zdeněk Tůma (Vice-Governor), Luděk Niedermayer (Chief Executive Director), Pavel Racocha (Chief Executive Director), Pavel Štěpánek (Chief Executive Director)

The CNB Bank Board assessed the situation that developed as a result of the European Central Bank's announcement on 8 April to cut its key refinancing rate from 3% to 2.5%. This move by the ECB was followed by other central banks. The opinion prevailed during the discussion that leaving CNB rates alone could lead to undesired tightening of domestic monetary conditions and to deviations on the foreign exchange market.

Bank Board members agreed that this does not change the assessment of the economic and monetary situation in the Czech Republic made during the last bank board meeting, in spite of new information on inflation, wages and unemployment. The main reason for holding an extraordinary meeting was the ECB decision mentioned above. Even though the CNB Bank Board bases the majority of its monetary policy decision-making on analyses of the economic and monetary situation in the Czech Republic, substantial changes in the monetary environment in main business partner regions cannot be ignored even in the future.

A more extensive discussion was taken up on the similarities and differences between the euro-zone and the Czech economy. A significantly higher degree of openness in the Czech economy means that the koruna is more sensitive to measures in the area of interest rates. It was also brought up as a reminder that the previous interest rate differential against euro-zone currencies has already been cut by more than half due to the gradual lowering of domestic interest rates. The possible impact of rate movement on the CZK/USD exchange rate was also mentioned. This is an important factor for the import price level and for financial account movements.

At the close of the meeting, the CNB Bank Board decided by a majority vote to cut the CNB 2W repo rate by 0.3 percentage points from 7.5% to 7.2%, effective immediately.


Author of the Minutes: Petr Krejčí, CNB, Adviser to the Board

Comments are welcome on the following email address: research@cnb.cz