CNB adopts stabilising measures in connection with coronavirus epidemic

At its extraordinary monetary policy meeting today, the Bank Board of the Czech National Bank unanimously adopted measures to mitigate the impacts of the situation caused by the coronavirus epidemic on Czech firms, businesses and households.

At its extraordinary monetary policy meeting today, the Bank Board of the Czech National Bank lowered the two-week repo rate by 50 basis points to 1.75%. At the same time, it lowered the Lombard rate to 2.75% and the discount rate to 0.75%. The change in rates takes effect on Tuesday 17 March 2020. 

In addition, the Bank Board declared that it was ready to cut interest rates further should the economic situation so require. 

Although the CNB currently perceives no shortage of liquidity in the banking sector, the Bank Board also, as a preventive measure, amended the rules of the liquidity-providing monetary policy operations introduced in October 2008 to support the domestic financial market during the global financial crisis.  Starting Wednesday 18 March 2020, these liquidity-providing repo operations will be announced three times a week (on Monday, Wednesday and Friday) instead of the current weekly frequency. Banks' bids in these liquidity-providing repo operations will be fully satisfied at a fixed rate corresponding to the two-week repo rate, i.e. with a zero spread. 

Furthermore, the Bank Board confirmed that the Czech National Bank stood ready to react to any excessive fluctuations of the koruna exchange rate using its instruments, in line with the managed float exchange rate regime. 

The CNB Bank Board also revised its earlier decision adopted in May 2019 to increase the countercyclical capital buffer rate for exposures located in the Czech Republic to 2% with effect from 1 July 2020. This decision means that banks will continue to maintain the currently applicable rate of this buffer at 1.75%. 

In this context, the CNB states that the capital position of the domestic banking sector is currently robust thanks to capital reserves and voluntary capital surpluses. The banking sector as a whole can cope with the consequences and significantly adverse economic developments, which is confirmed by both supervisory and macro stress tests. Therefore, the CNB does not at present consider it necessary to cut the countercyclical capital buffer rate below the current level of 1.75%. At the same time, however, the CNB is ready to release the buffer immediately and fully were the banking sector's unexpected losses to rise, in order to support banks' ability to provide credit to non-financial corporations and households without interruption.  

Due to high uncertainty regarding further economic developments, the CNB expects in the current situation that banks will, with immediate effect and until both acute and longer-term consequences of the new coronavirus epidemic fade away, refrain from any dividend payouts or any other steps that might jeopardise individual banks' resilience. 

The Bank Board also discussed the supervisory approach to banks' potential postponement of clients' loan instalments. In general, the CNB does not prescribe banks the strategy and rules which they should adopt for the provision, administration and recovery of credit. The decision allowing to postpone instalments of all types of loans is thus within the competence of individual banks. Where a client's loss of income is only temporary due to the coronavirus infection or the related preventive measures, the postponement of instalments is an appropriate way to ensure the repayment of the entire receivable in the future. Such a postponement may not lead to reclassifying a bank's liability as a classified, or non-performing, receivable under the applicable rules. The Bank Board considers the use of such supervisory flexibility as desirable. However, the overall assessment will depend on the duration of the loss of income and on the extent to which a client's ability to continue repaying the loan will be affected. Therefore, it is important that banks remain sufficiently capitalised.

A press conference attended by Governor Jiří Rusnok, Executive Director of the Monetary Department Petr Král and Executive Director of the Financial Stability Department Jan Frait will take place at 5.15 p.m. today at the CNB Congress Centre. Owing to the measures to counter the spread of the coronavirus, media presence will be limited to the Bloomberg, ČTK and Reuters agencies and Czech Television. The press conference will be streamed live on the CNB website.

Markéta Fišerová
Director of the Communications Division and CNB spokesperson