Czech National Bank Cuts Rates to Record Low

wo-week repo rate and Lombard rate reduced by 25 basis points: repo rate to 0.75%, Lombard rate to 1.75%. Discount rate left unchanged at 0.25%.

The CNB Bank Board decided at its meeting today to lower the key two-week repo rate by 25 basis points to 0.75%, a new record low. The Lombard rate was also lowered by 25 basis points to 1.75%. The discount rate remains unchanged at 0.25%. The new interest rate levels come into effect on 7 May 2010.

The CNB last eased monetary policy on 16 December 2009, when it lowered the repo rate by 25 basis points to 1.00%.

The Bank Board decided to leave the discount rate unchanged because many legal rules use a multiple of the discount rate in sanction and similar provisions as a basis for calculating penalties, fines, sanction fees, etc. From the perspective of the spirit of the law the CNB deemed it justified to keep the sanction amounts above zero in such cases.

This decision narrows the spread between the discount rate and the repo rate to 0.50 percentage point from the usual 1 percentage point (the discount rate was also left unchanged when the repo rate was cut in December 2009). The spread between the repo rate and the Lombard rate remains unchanged at 1 percentage point.

The history of the settings of the main monetary policy instruments and the Bank Board minutes are available at

https://www.cnb.cz/en/monetary-policy/instruments/#mpi
http://www.cnb.cz/en/monetary_policy/bank_board_minutes/index.html

Discount rate: A monetary policy rate which as a rule represents the floor for short-term money market interest rates. The CNB applies it to the excess liquidity which banks deposit with the CNB overnight under the deposit facility.

Lombard rate: A monetary policy interest rate which provides a ceiling for short-term interest rates on the money market. The CNB applies it to the liquidity which it provides to banks overnight under the lending facility.

Repo rate: The CNB’s key monetary policy rate, paid on commercial banks’ excess liquidity as withdrawn by the CNB in two-week repo tenders.

Marek Petruš
CNB Spokesman