Česká národní banka


CNB > Monetary policy > CNB Board decisions > 2017 > Statement of the Bank Board for the press conference

Statement of the Bank Board for the press conference following the monetary policy meeting

27 Sep 2017

At its meeting today, the Bank Board of the Czech National Bank decided to keep interest rates unchanged. The two-week repo rate thus remains at 0.25%, the discount rate at 0.05% and the Lombard rate at 0.50%. Four members voted in favour of this decision. Three members voted for raising the two-week repo rate to 0.50% and the Lombard rate to 1.00%.

According to the current forecast, inflation will stay in the upper half of the tolerance band around the target for the rest of this year and decline towards the 2% target at the start of next year. Following the August rise in interest rates, a further increase in rates over the next two years is consistent with the forecast. The Bank Board assessed the risks to the current forecast as being slightly inflationary.

The outlook for economic activity in the Czech Republic’s main trading partner countries has risen slightly over the entire forecast horizon, but most markedly at its shorter end. By contrast, the outlook for foreign industrial producer prices for this year and the next has been revised downwards slightly. Expected consumer price inflation in the euro area this year has also been lowered marginally. The outlook for euro interest rates has also shifted slightly lower over the entire forecast horizon and remains negative until the end of 2019. The market outlook for the Brent crude oil price has increased over the entire forecast horizon. In terms of koruna prices of oil, however, this is partly offset by a stronger euro against the dollar.

Domestic inflation rose to 2.5% in July and stayed at the same level in August. The inflation outturn in August was 0.1 percentage point below the forecast. This small deviation was due to slightly lower-than-forecasted growth in food prices. In line with our expectations, core inflation continued to increase, mainly due to accelerating growth of the domestic economy and wages. Following a previous decline, price growth in manufacturing rebounded modestly in August. Growth in agricultural producer prices remains in double figures. Growth in construction work prices and market services prices is accelerating gradually.

The growth of the Czech economy accelerated to more than 4.5% in 2017 Q2, whereas the forecast had expected it to be more than a percentage point lower. The stronger growth of the Czech economy was aided by household consumption, reflecting buoyant growth in wages and employment. It was also fostered by a marked recovery in investment activity and by foreign trade.

The available monthly indicators point to continued solid growth in industrial production and retail sales. Following a long period of decline, construction output rose for the fifth consecutive month. The economic sentiment of both households and corporations remains high. These indicators thus suggest continued robust economic growth in Q3.

In line with our prediction, the unemployment rate fell slightly again in 2017 Q2. The share of unemployed persons has also come down somewhat further in Q3 so far. A shortage of available labour coupled with high labour demand led to a further sizeable increase in job vacancies and stronger upward pressure on wages. As a result, wage growth in market sectors rose sharply in Q2, significantly exceeding the forecasted levels. Wages in non-market sectors are also rising very quickly. The tightness in the labour market has thus increased again.

To sum up the important facts about recent developments in the Czech economy, inflation was only slightly below the forecast in August. The share of unemployed persons in July and August was also very close to the forecast. Conversely, GDP and the average wage increased much faster in Q2 compared to the forecast.

The Bank Board assessed the balance of risks to the current forecast at the monetary policy horizon as being slightly inflationary. Faster growth in domestic wages and economic activity is acting in this direction. In addition, higher-than-expected inflation may be fostered in the quarters ahead by a weaker-than-forecasted exchange rate of the koruna. Conversely, the lowered outlook for industrial producer prices in the euro area and lower-than-forecasted food prices are slight downside risks. Further interest rate increases will be conditional on the evolution of all key macroeconomic variables, including the exchange rate of the koruna.