Česká národní banka


CNB > Monetary policy > CNB Board decisions > 2018 > Statement of the Bank Board for the press conference

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

29 Mar 2018

At its meeting today, the Bank Board of the Czech National Bank decided unanimously to keep interest rates unchanged. The two-week repo rate thus remains at 0.75%, the discount rate at 0.05% and the Lombard rate at 1.50%.

According to the current forecast, inflation will be above the Czech National Bank’s 2% target for the rest of this year and return to it at the start of next year. Following the interest rate increase in February, a further rise in rates at the close of this year at the earliest and especially next year is consistent with the forecast. The Bank Board assessed the risks to the current forecast as being slightly anti-inflationary.

Compared to the assumptions of the current forecast, the outlook for growth in foreign economic activity this year and the next has shifted slightly higher. The outlook for euro area producer prices this year has likewise increased. In 2019, by contrast, the producer price outlook is lower. Expectations regarding consumer prices and euro interest rates remain unchanged.

The market outlook for oil prices is little changed. The euro-dollar exchange rate is currently expected to remain stable at the present level, which has shifted towards a stronger euro compared to the assumptions of the forecast.

Domestic inflation fell further at the start of this year. The fall was only modest in January but more pronounced in February, when inflation dropped slightly below the Czech National Bank’s 2% target for the first time in more than a year. In February, inflation was markedly below the central bank’s forecast. This was due mainly to lower-than-expected food price inflation. However, core inflation also fell somewhat short of the Czech National Bank’s expectations.

The growth of the Czech economy accelerated further in 2017 Q4. Its pace was only slightly below the central bank’s forecast. This was linked with slightly slower-than-expected growth in household consumption. Nevertheless, its dynamics remain robust due to a strong labour market and ensuing rapid growth in household income. The deviations of the other demand components from the Czech National Bank’s forecast were generally insignificant and, moreover, offset each other to a large extent.

According to monthly indicators, industrial production and retail sales continued to rise at roughly the same pace in January. Following a slowdown in December, growth in construction output accelerated again. The economic sentiment of both households and corporations remains favourable. These indicators suggest continued robust economic growth at the start of this year.

The labour market situation reflects the exceptionally good performance of the Czech economy over the last few years. Employment continued to increase year on year at the close of last year, although its growth moderated in line with the forecast. The long-running decrease in unemployment also continued into early 2018, albeit only to a small degree according to the monthly indicators. This was also in line with the forecast. A shortage of available labour force coupled with high labour demand led to a further sizeable increase in job vacancies to new historical highs. As expected, wage growth accelerated again in late 2017, although its pace in the private sector was slightly lower than the central bank had predicted.

To sum up the important facts about recent developments in the Czech economy, GDP growth and wage growth in Q4 were only slightly below the forecast. Inflation was markedly below the Czech National Bank’s forecast at the start of this year. The share of unemployed persons has been in line with the forecast so far in Q1.

The Bank Board assessed the risks to the inflation forecast at the monetary policy horizon as being slightly anti-inflationary. Risks in this direction stem mainly from inflation, which decreased faster at the start of this year than the Czech National Bank had expected. However, more gradual appreciation of the koruna compared to the forecast may act in the opposite direction in the quarters ahead.