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Czech National Bank keeps two-week repo rate at 3.75% despite higher than expected inflation, growth
By Laura Lutz
Des Moines, April 4 - The board of the Czech National Bank decided to leave the two-week repo rate unchanged at 3.75%, according to minutes of its March 26 meeting that were released on Friday.
At the meeting, the board was told that inflation in both January and February, which saw annual consumer price inflation of 7.5%, were higher than expected by the bank's February forecast. Monetary-policy relevant inflation and adjusted inflation excluding fuels were also higher than expected, the bank said.
Domestic economic growth had also been higher than expected, and the revision of the GDP figures also suggested higher-than-forecasted growth, the bank was told. On the other hand, lower-than-expected wage growth at the end of 2007 could be considered a downside risk in relation to the forecast.
The board agreed that headline inflation, especially adjusted inflation excluding fuels, indicated the existence of demand-pull inflation pressures in the domestic economy.
Members also agreed that the external economy was a source of more uncertainty than the domestic economy, noting that a U.S. financial crisis and economic slowdown could act against inflation in the Czech Republic.
The board was divided on the degree to which the U.S. financial market crisis had affected the exchange rate of the koruna, but they agree that the strong koruna exchange rate was tightening domestic monetary policy relative to the February forecast.
In the end, six members voted in favor of leaving the two-week repo rate unchanged, and one member voted for increasing rates by 0.25%.
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