Bloomberg News

Czech Central Bank Sees Risk to Lower Interest Rates, Inflation

September 30, 2011

Sept. 30 (Bloomberg) -- The Czech central bank sees risks to its forecast tilted “slightly” toward slower inflation and “significantly” to lower interest rates, according to minutes from the most recent policy meeting on Sept. 22.

Fiscal austerity abroad may hurt demand for Czech exports and weaken economic growth, the central bank said in the minutes. The weaker-than-expected koruna represented an upside risk to inflation, according to the minutes.

The Czech National Bank’s board on Sept. 22 voted 7-0 to leave the benchmark rate at a record-low 0.75 percent, half of the European Central Bank’s main rate, and signaled it may ease policy as the euro area’s sovereign-debt crisis worsens the economic outlook and intensified downside inflation risks.

“The main anti-inflationary risks were slightly toward lower inflation and significantly toward lower interest rates,” the minutes said. “The external situation represented a downside risk to inflation” as austerity measures in developed economies “might have a negative effect on economic growth,” they said.

The development of the German economy is of “primary relevance” to the outlook abroad, the central bank said.

“The stimulation of German domestic consumption currently under discussion might have a negative effect on Czech exports, which are tied more to German exports than to consumption,” according to the minutes. “The problems of the southern euro- area countries might reduce demand for German exports.” Policy makers noted that the effect of these trade flows “was not all that strong” and that account should be taken rather of the possibility of financial market contagion.

--Editors: Douglas Lytle, Alan Crosby

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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