Bloomberg News

Czech Central Bank Board Voted 6-0 to Leave Rates; Cuts Forecast

February 02, 2012

Feb. 2 (Bloomberg) -- The Czech central bank board voted unanimously to leave interest rates unchanged for a 14th meeting as policy makers cut the outlook for economic growth in 2012 to zero.

The policy makers voted 6-0 to leave the two-week benchmark repurchase rate at a record-low 0.75 percent, with Vice-Governor Mojmir Hampl not present at the meeting, according to a presentation given to reporters at a press conference today.

The bank reduced the forecast for growth in 2012 to zero from 1.2 percent previously, less than a Finance Ministry forecast released on Jan. 31 that expects the economy to grow 0.2 percent this year. The new quarterly central bank forecast expects a rate of expansion next year of 1.9 percent, down from 2.7 percent in the last quarterly estimate.

“The Czech economy will stagnate this year as a result of a marked slowdown in external demand and continuing fiscal consolidation,” the presentation said. Growth will resume next year “in connection with an external demand recovery.”

“Consistent with the forecast is stability of market interest rates in the near future and a modest decline thereafter,” the report said. Risks to the central bank’s forecast are balanced, according to the report.

The central bank’s “monetary policy” inflation rate, which policy makers use to help in deciding the direction of interest rates, will be close to the target over the entire forecast horizon.

Inflation Outlook

Headline inflation is seen rising “temporarily” to just above 3 percent in 2012 because of an increase in the value- added tax rate before inflation slows again below the central bank’s target in 2013, the report said.

Inflation by the end of the second quarter of 2013 may reach 1.5 percent, unchanged from the previous central bank forecast.

The koruna will weaken more than forecast in the previous economic report, with the currency ending 2012 at 24.9 against the euro, compared with 23.1 against the euro in the last forecast. The koruna is seen ending 2013 at 24.3 against the euro in the report.

Downside risks to the central bank’s forecast include the possibility of additional “fiscal consolidation” efforts by the government while faster growth of food prices is an upside risk, the presentation said. The overall forecast will be affected by economic developments abroad and the koruna exchange rate.

--Editors: Douglas Lytle, Alan Crosby

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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