The task of monetary policy is to keep inflation low, stable and therefore predictable. By maintaining inflation close to the 2% target, the CNB creates an environment conducive to the development of business activity and growth in household living standards.
The CNB’s main task is to maintain price stability
Under the Constitution of the Czech Republic, and in accordance with primary EU law, the CNB’s primary objective is to maintain price stability, which is also enshrined in the Act on the CNB (pdf, 238 kB). Rather than zero inflation, price stability means moderate and stable growth in prices, which is natural in a sound economy.
Monetary policy steers inflation towards 2%
In maintaining price stability, the CNB uses inflation targeting, which is based on a publicly announced inflation target of 2% and open communication by the central bank. Interest rates are the main monetary policy instrument. Their levels are reflected in market rates and, in turn, influence the economy and inflation.
The Bank Board decides on interest rates eight times a year
The Bank Board meets eight times a year to discuss monetary policy issues. Each meeting results in a decision either to leave interest rates unchanged until the next meeting or to change them. A Bank Board decision made today will affect inflation the most 12–18 months ahead. The macroeconomic forecast is therefore important for interest rate decisions. It describes the future path of the economy as seen by the Monetary Department’s economists. At their monetary policy meetings, the members of the Bank Board discuss the current forecast and assess its risks and uncertainties.