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 unanimously kept interest rates unchanged. The two-week repo rate thus remains at 0.25%, the discount rate at 0.05% and the Lombard rate at 1%.

This decision of the Bank Board is underpinned by the winter macroeconomic forecast and by an assessment of information obtained since it was prepared. Consistent with the forecast is stability of market interest rates initially, followed by a gradual rise in rates from roughly the middle of this year onwards. The Bank Board assessed the uncertainties and risks of the forecast in the context of the ongoing pandemic as remaining very substantial. This could lead to a need to keep the monetary conditions accommodative for rather longer than in the forecast.

The current outlook for GDP growth in the effective euro area is slightly lower for this year, owing to a deterioration of the epidemic situation there and an extension of lockdowns, and is unchanged for next year. The outlook for foreign industrial producer prices this year has moved upwards significantly. This is mainly because of a rise in the energy component, reflecting a higher oil price outlook. However, the core component has also increased. Besides costlier material inputs, energy and transport, this rise reflects the resilience of euro area industry to the pandemic so far. By contrast, the outlook for industrial producer price inflation in 2022 has been lowered. Consumer prices will also rise faster than previously expected this year. This will reflect their surprisingly strong increase at the start of the year and the higher oil price outlook. Next year, however, inflation will moderate roughly to the values expected by the forecast, mainly because of an only gradual recovery of the euro area from the pandemic. The outlook for foreign interest rates is broadly unchanged.

The Brent crude oil price rose significantly during February and March, with its outlook shifting appreciably above the assumptions of the current forecast. The euro-dollar exchange rate expected for this year and the next is almost unchanged.

So far this year, domestic inflation has returned towards the target from above and has been rather higher than expected in the forecast. The deviation from the forecast was due mainly to food price inflation, which accelerated unexpectedly at the start of the year. Core inflation, which was above the forecast despite decreasing in February, also contributed to the deviation from the forecast. In early 2021, administered price inflation slowed somewhat more markedly than forecasted. The moderation of the year-on-year decline in fuel prices was in line with the projection. The same was true for the first-round effects of changes to indirect taxes. According to the current forecast, inflation will fluctuate around the target this year and will be slightly above it next year as a result of an increase in excise duty on cigarettes.

At the close of last year, the Czech economy faced a renewed tightening of anti-epidemic measures connected with the onset of the autumn wave of the coronavirus pandemic. Despite this, its output rose by 0.6% quarter on quarter and recorded a smaller year-on-year decline than forecasted. The deviation was partly due to a larger positive contribution of net exports and faster growth in government consumption. Conversely, the downturn in household consumption was slightly larger than expected. Gross capital formation was broadly in line with the prediction. The current forecast expects the adverse economic impacts of the pandemic to subside gradually and household and business sentiment to improve in the course of this year. The output of the economy will return to year-on-year growth in Q2. In 2021 as a whole, the economy will grow by more than 2%. The growth will pick up further next year, fostering a gradual return of economic activity to the pre-pandemic level.

The January indicators confirm the so far relatively moderate impacts of the ongoing pandemic on domestic industrial production. However, production shortfalls in the domestic automotive industry due to disruptions to supplies of components at the start of this year may signal that the current wave of the pandemic is beginning to adversely affect this sector, too. Construction remains in a downturn. In early 2021, the situation in retail and other services was adversely affected by more restrictive anti-epidemic measures compared with the forecast, which may be reflected in a deeper decline in household consumption in 2021 Q1 than expected in the winter forecast.

Despite worsening slightly at the close of last year, the labour market remains in relatively good shape. The increase in unemployment at the turn of the year was broadly as expected. Wage growth was well above the forecast in 2020 Q4, especially in market sectors. This was due to lower tax optimisation and higher wage growth in the healthcare sector, but partly also to stronger fundamental wage growth.

The koruna appreciated against the euro in the first half of February but then weakened as a result of a deterioration in the domestic pandemic situation. So far in Q1, the koruna has been 20 hellers stronger than forecasted on average. The koruna will continue to appreciate gradually according to the forecast.

In a situation of unprecedented uncertainty affecting both economic life itself and the way it is captured by the statistical data, the winter forecast is materialising in a fairly satisfactory way so far. The somewhat smaller-than-expected year-on-year decline in economic activity in 2020 Q4 is good news. The February inflation figure was slightly higher than forecasted. The share of unemployed persons has been roughly as forecasted in 2021 Q1 so far. The unexpectedly sharp acceleration of the average wage at the close of last year was therefore the biggest surprise, although this was largely due to non-fundamental factors.

The Bank Board assessed the uncertainties and risks of the current forecast in the context of the ongoing pandemic as remaining very substantial. A slower fading out of the unfavourable epidemic situation, and thus slower opening of the domestic and European economies, remains the most substantial risk. This could lead to a need to keep the monetary conditions accommodative for rather longer than in the forecast.