Czech Central Bank Holds Rate, Exchange Rate Commitment Unchanged

(RTTNews) - The Czech central bank held its key interest rate steady for a 26th straight month though policymakers continued to explore the use of negative interest rates, and affirmed its exchange rate commitment while saying that the currency ceiling may be discontinued around the middle of next year, owing to the anti-inflationary risks.

The Czech National Bank Board held the two-week repo rate at 0.05 percent, in line with economists' expectations. The discount rate was kept at 0.05 percent and the lombard rate at 0.25 percent.

The bank repeated its commitment to intervene on the foreign exchange market, if needed, to weaken the koruna so that the exchange rate of the currency against the euro is kept close to CZK 27/EUR. The central bank reiterated that the exchange rate commitment is one-sided.

The CNB had set the exchange rate floor in November 2013. In September last year, the bank forecast that the exchange rate would be used as a monetary policy instrument until the end of 2016.

Following the latest meeting, the bank said, "In view of the slightly anti-inflationary balance of risks to the current forecast, the Bank Board considers it likely that the commitment will be discontinued nearer to mid-2017."

"The Bank Board again discussed the possibility of using negative interest rates," the bank said.

The Czech economy will continue to grow strongly this year and, accordingly, for now we don't expect additional policy easing, Capital Economics economist William Jackson said. The economist expects monetary policy to remain extremely accommodative and the policy rate to remain at 0.05 percent both this year and next.