Minutes of the CNB Board Meeting on 30 April 1998

The Board evaluated the economic and monetary situation from the point of view of factors which might incite deliberations on a future change (easing) of monetary policy. These deliberations were based on data on the current situation: the low level of the last month-on-month CPI change and net inflation index, continual improvement of annualised trade and current account balances, strengthening of the nominal exchange rate of the koruna, improving the relationship between productivity and wage increases. The relatively favourable evaluation of the macroeconomic situation given by an IMF mission was mentioned as well.

At the same time, the discussion also dealt with factors which on the one hand correct seemingly favourable data, and on the other, like in previous months, represent potential risk for monetary development. The deceleration of month-on-month CPI inflation was classified as only the first signal of inflation improvement and was accompanied by a substantially higher rise in seasonally adjusted values (+0.4). CPI inflation has recently been reduced by favourable development in global raw material prices. A rise in agricultural product prices could be considered a certain risk for future CPI development.

The Board has classified the situation in the wage area, particularly the differences between the public and private sectors, as the main factor threatening the achievement of macroeconomic stability. The Board stated that preliminary data on the deceleration of wage increases were not convincing enough to rule out (mainly in the context of anticipated new wage requirements) the possible renewal of strong demand pressures. The rise in unit wage costs has inhibited future competitiveness for Czech production, thereby producing risks also for exchange rate development.

A slight decline in interest rates was linked to the calming of the situation on the financial markets. This was generated by some favourable news on economic development and led to a decrease in risk premiums. The general opinion was that positive trends could only have a short-term character while potential risks were more systemic in nature and would become apparent in the medium-term horizon. In view of the above factors, the Board decided not to change the current level of interest rates.