Minutes of the CNB Board Meeting on 17 December 1998

Present at the meeting: Present at the meeting: Josef Tošovský (Governor), Jan Vít (Vice-Governor), Pavel Kysilka (Vice-Governor), Miroslav Hrnčíř. (Chief Executive Director), Ota Kaftan (Chief Executive Director), Luděk Niedermayer (Chief Executive Director), Jiříí Pospíšil (Chief Executive Director)
Ivo Svoboda (Czech Minister of Finance)

During its regular meeting, the CNB Board discussed several different approaches to setting the medium-term inflation target for 2001 and longer-term inflation targets. On the basis of the analytical framework provided, bank board members were in agreement that the ultimate long-term goal of monetary policy is clear and explicit, i.e. creation of conditions for the Czech Republic's accession to the European Monetary Union. For this reason, the economic conditions connected to joining the Euro block (rate of inflation, level of long-term interest rates) have a normative character. The only remaining concern now will be the path to take for reaching this goal.

At the beginning of 1999, the Czech National Bank will present its views on long-term monetary policy strategy to the government and the public. The announcement of the medium-term inflation target for 2001 will also be presented at this time.

The CNB Board also discussed a proposal for lowering minimum reserve requirements and for making some adjustments in the calculation methods. The board stated that the role of minimum reserve requirements in monetary policy is gradually losing significance. The main reason then for lowering these rates is to strengthen the financial status and competitiveness of the domestic banking sector as well as to initiate further steps towards harmonising monetary policy instruments with those of the European Union. In addition, the board evaluated the effect that minimum reserve cuts would have on the necessary and anticipated demonetisation of the public debt and on some of the technical issues concerning clearing settlement.

On the basis of the proposal and related discussion, the board decided unanimously to lower the rate base of minimum reserve requirements from the current 7.5% to 5% (existing preferential rates for some banks remaining unchanged). The base for calculating minimum reserves will be supplemented with the remaining primary debt in foreign currency which, up to this point and time, has not been accurately classified in accounting (client credits, deposits of government and municipal institutions and issued debt securities with maturities of up to 5 years).

These measures will come into effect 28 January 1999