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

3 May 2018

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 0.75%, the discount rate at 0.05% and the Lombard rate at 1.50%. Six members voted in favour of this decision, and one member voted for increasing the two-week repo rate to 1.00%.

The decision adopted by the Bank Board is underpinned by a new macroeconomic forecast of the Czech National Bank. Consistent with the forecast is broad stability of market interest rates initially, followed by further growth in rates from late 2018/early 2019.

According to the external assumptions of the new forecast, the current robust growth in the euro area will slow gradually, owing partly to the stronger euro. Industrial producer price inflation will fluctuate around 2%. By contrast, consumer price inflation will return only gradually to 2%. The European Central Bank is responding to persisting subdued inflation in the euro area with continued accommodative monetary policy. The 3M EURIBOR will thus not move close to zero until the end of next year. The Brent crude oil price will gradually decline from its current elevated levels almost to USD 60 a barrel at the end of next year. The euro-dollar exchange rate is expected to remain close to its current strengthened level.

The recent decline in domestic inflation slightly below the target reflected the fade-out of last year’s one-off factors and a fall in import prices. Domestic inflation pressures nonetheless remain strong, reflecting rapid wage growth amid buoyant growth of the Czech economy. These pressures will gradually ease, but the anti-inflationary effect of import prices will weaken as well. Import prices continue to reflect the strengthening koruna this year. Inflation will remain slightly below the target this year. Next year, however, stable growth in foreign producer prices amid distinctly slower appreciation of the koruna will foster a renewed increase in import prices. Inflation will thus return very close to the 2% target at the monetary policy horizon.

The growth of the Czech economy will slow from last year’s high pace, but will remain well above 3%. The increase in economic activity will be driven by continued brisk growth in household consumption and private and government investment. Fiscal policy will also support domestic demand growth via rising current government expenditure. By contrast, the current positive contribution of net exports to the growth of the Czech economy will disappear. It will reflect, on the one hand, faster growth in domestic demand, which will support imports, and on the other hand appreciation of the koruna, which will dampen export growth. The unemployment rate is at a record low and there is little room for it to decrease further. At the same time, therefore, employment growth will slow, whereas wage growth will remain high. The latter will moderate in the quarters ahead, but only slowly. This will be due to persisting labour market tightness and sharply rising labour productivity.

According to the forecast, the koruna will appreciate further, owing among other things to a positive interest rate differential vis-à-vis the euro area. In addition, continued asset purchases by the European Central Bank will continue to foster appreciation of the koruna this year. Solid growth in external demand and real convergence of the Czech economy to euro area countries will also act in this direction. Next year, the koruna will appreciate much more modestly. This will be due to slowing growth in external demand and the European Central Bank’s expected return to conventional monetary policy.

Consistent with the forecast is broad stability of market interest rates initially, followed by further growth in rates from late 2018/early 2019. According to the forecast, interest rates will thus move towards their long-run neutral level in the course of next year. Continued very accommodative monetary policy of the European Central Bank will remain a significant barrier to a faster increase in domestic interest rates.

Compared to the previous forecast, the inflation forecast for this year has been lowered, but at the monetary policy horizon the inflation outlook remains almost unchanged. The forecasted growth of the Czech economy has been increased slightly for both years. The path of interest rates is little changed. The forecast for the koruna-euro exchange rate is slightly weaker for this year but slightly stronger for next year.

The Bank Board assessed the risks to the inflation forecast at the monetary policy horizon as being balanced. At the same time, it stated that there are three main uncertainties of the forecast. The first one is associated with the strength and composition of the overall inflation pressures in conditions of a tight labour market and counteracting productivity growth. The second one remains the exchange rate path. The third uncertainty is connected with developments abroad.