Statement of the Bank Board for the press conference following the monetary policy meeting
At its meeting today, the Bank Board of the Czech National Bank decided to keep interest rates unchanged. The two-week repo rate thus remains at 2%, the discount rate at 1% and the Lombard rate at 3%. Six members voted in favour of this decision, and one member voted for increasing rates by 25 basis points.
This decision is underpinned by the current macroeconomic forecast and by an assessment of information obtained since the current forecast was prepared. The current forecast expects inflation to stay in the upper half of the tolerance band around the target this year and decrease to the target at the start of next year. Following the increase in May, broad interest rate stability until mid-2020 is consistent with the forecast. At its meeting today, the Bank Board assessed the risks to the inflation forecast at the monetary policy horizon as being balanced.
With regard to the external assumptions of the forecast, the outlook for growth in foreign producer prices has been lowered, reflecting both their latest evolution and lower expected oil prices. The outlook for economic activity and consumer prices in the euro area is little changed. The market outlook for the 3M EURIBOR in 2020 has been shifted slightly downwards after the European Central Bank extended the period of stability of its interest rates at least until mid-2020 and announced that it was considering other options for easing monetary policy.
The market outlook for the Brent crude oil price this year and the next is markedly lower than expected in the current forecast. The euro-dollar exchange rate has shifted to slightly weaker levels, but the euro is still expected to appreciate slightly.
So far in Q2, domestic inflation has been in the upper half of the tolerance band around the target, in line with the forecast. It was slightly below the forecast in April, whereas in May it was slightly higher than forecasted. These deviations of inflation from the forecast were due mainly to volatile food prices. Fuel prices were slightly higher in these two months. The other components of inflation were broadly in line with the forecast.
In 2019 Q1, the Czech economy grew at the same pace as at the close of last year, in line with the forecast. However, the individual expenditure components differed slightly from the prediction. Household and government consumption grew somewhat faster than forecasted. Conversely, growth in gross capital formation lagged behind expectations, which was due to lower dynamics of fixed investment. The net exports forecast broadly materialised.
April data point to continued solid growth in retail sales and construction output, as well as a slight recovery in industrial production.
As expected, employment growth slowed in 2019 Q1 amid persisting labour shortages. In line with the prediction, the unemployment rate recorded only a marginal decrease. The number of job vacancies declined slightly. Total wage growth accelerated above the forecast, but wage growth in market sectors was broadly in line with the forecast.
The koruna-euro exchange rate fluctuated within a relatively narrow range of CZK 25.6–25.9 to the euro during Q2. Its average level of CZK 25.7 to the euro was 20 hellers weaker than forecasted.
To sum up the important facts about recent developments in the Czech economy, prices and wages increased slightly faster than forecasted, unemployment was only marginally lower and GDP growth was in line with the forecast.
The Bank Board assessed the risks to the current inflation forecast at the monetary policy horizon as being balanced. The main risks and uncertainties continue to be related to the impacts of protectionist measures in global trade, a more pronounced and potentially more protracted slowdown in economic growth in the euro area and the exchange rate of the koruna going forward.