Cutting 2W repo rate

At its meeting today, the Czech National Bank Board discussed the status report on monetary development.

The Board confirmed that the outlook for inflation this year was favourable and that this was creating room for a fall in interest rates. It therefore decided to cut the 2W repo rate by 0.75 percentage points from the present 8.75% to 8%, effective from 29 January 1999.

At the same time, the Board stated that the medium-term risks in the Czech economy were increasing. This is confirmed by the wage bargaining process so far, which is heading towards a disproportionate increase in real wages and may result in a further surge in unemployment or an increase in inflation. In addition, the trade balance results are signalling a slump in export competitiveness and a rise in the import propensity of our economy.

It is also possible that the approved state budget deficit will be exceeded. The Board pinpointed development in these risky areas as crucial for the further course of monetary policy.

CNB - M. Švehla