In 1998, the Czech National Bank switched to direct inflation targeting. In the inflation targeting regime, the central bank’s communication with the public plays a significant role. One of the core elements of this communication is the publishing of quarterly Inflation Reports.
The forecast for inflation at the “monetary policy horizon” (about 12–18 months ahead) is of greatest relevance to the decision-making on the current interest rate settings. Section II of the Inflation Report describes the forecast for the Czech economy as drawn up by the CNB’s Monetary Department. Section III describes and assesses economic and monetary developments in the previous quarter, which represent the starting conditions for the forecast.
The inflation forecast and the assumptions underlying it are published with the aim of making monetary policy as transparent, comprehensible, predictable and therefore credible as possible. The Czech National Bank is convinced that credible monetary policy effectively influences inflation expectations and minimises the costs of maintaining price stability. Maintaining price stability is the Czech National Bank’s primary objective.
The forecast is the key, but not the only, input to the Bank Board’s decision-making. At its meetings during the quarter, the Bank Board discusses the current forecast and the balance of risks and uncertainties surrounding it. The arrival of new information since the forecast was drawn up and the possibility of asymmetric assessment of the risks of the forecast and divergent views of some board members on the development of the external environment or the linkages between the various indicators within the Czech economy mean that the Bank Board’s final decision need not correspond to the message of the forecast. Information on the Bank Board’s discussions and on the reasons for its monetary policy measures is given in the minutes of the Bank Board meetings.
(Published four times yearly since 1998 on the Internet.)