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%. Five members voted in favour of this decision, and two members voted for increasing rates by 25 basis points.
This decision is underpinned by the November macroeconomic forecast and by an assessment of information obtained it was prepared. Inflation will be close to the upper boundary of the tolerance band around the inflation target in the quarters ahead and will converge towards the 2% target over the monetary policy horizon. Consistent with the forecast is a rise in domestic market interest rates in this quarter and the next, followed by a decline from mid-2020. At its meeting today, however, the Bank Board assessed the risks as being tilted towards lower-than-forecasted interest rates in the coming quarters.
As regards the external assumptions of the forecast, expected economic growth in the euro area has been lowered marginally for next year, whereas the outlook for producer and consumer prices has risen very slightly. The 3M EURIBOR outlook for the two years ahead has also been revised slightly upwards.
The market outlook for the Brent crude oil price has been shifted upwards over the entire forecast horizon, and more markedly so for next year. Compared with the assumptions of the current forecast, the outlook for the euro-dollar exchange rate is unchanged.
Domestic inflation was close to the upper boundary of the tolerance band around the target during Q4 and rose slightly above the forecast and the tolerance band boundary in November. The deviation from the forecast was small and due mainly to faster-than-expected growth in food prices. Core inflation and fuel prices were also slightly above the forecast. On the other hand, administered price inflation accelerated rather more slowly than expected.
The growth of the Czech economy slowed slightly in Q3 and was just below the forecast. The slower-than-expected GDP growth was due to somewhat more moderate growth in household consumption and a lower contribution of net exports. The latter was due to a higher-than-expected increase in goods and services imports, whereas exports were in line with the forecast. By contrast, the contributions of government consumption and gross capital formation to GDP growth were bigger than forecasted. Within the latter, fixed investment remained broadly stable in line with the forecast, so the higher contribution to growth was due to change in inventories.
Industrial production declined year on year in Q3 and was broadly flat in October. Construction output followed a similar pattern. Retail sales continued to rise swiftly in October, signalling solid household consumption growth for the end of this year.
Total employment growth remained subdued, in line with the forecast. As expected, the unemployment rate stayed close to its historical low. The number of job vacancies was meanwhile still high. Wage growth slowed slightly in Q3, lagging somewhat behind the forecast owing to lower-than-expected wage growth in market sectors.
So far in Q4, the koruna-euro exchange rate has appreciated slightly and has been marginally stronger than forecasted on average. Domestic money market interest rates were almost unchanged from the previous meeting and are thus slightly below the forecast.
To sum up the important facts about recent developments in the Czech economy, prices are increasing slightly faster than forecasted, whereas GDP and wages are rising rather more slowly. The unemployment rate is in line with the forecast.
The Bank Board assessed the risks as being tilted towards lower-than-forecasted interest rates in the coming quarters. The uncertainties regarding the situation abroad have decreased slightly, but on the other hand more marked transmission of the previous external demand slowdown to the domestic economy is being observed.