Most Czech central bank board members see risks pointing to a need of “slightly” looser monetary policy by the middle of next year, minutes from their March 28 rate-setting meeting showed.
The domestic economy is more subdued than the central bank had forecast and weaker household demand signals deferred consumption caused by declining prices aside from food and fuels, the central bank, which targets inflation, said in the minutes posted on its website today.
After cutting borrowing costs three times last year to effectively zero, the Ceska Narodni Banka is in uncharted territory as policy makers debate whether to engage in currency interventions amid a record-long recession. The $217 billion economy is contracting as households and businesses spend less due to Europe’s debt crisis and government austerity measures that trimmed the fiscal deficit more than planned last year.
“A majority of the board members agreed that the risks to the forecast were tilted to a need for slightly easier monetary conditions at the forecast horizon,” according to the minutes. “It was said repeatedly that directly influencing the exchange rate is an effective monetary policy instrument in a small open economy in a situation where monetary policy rates are at technically zero.”
At least one board member said that further discussion of monetary policy options available for responding to current and future shocks was “absolutely vital in the present macroeconomic situation,” according to the minutes, which don’t disclose opinions of individual policy makers expressed in the debate.
All seven policy makers voted to leave the two-week repurchase rate at 0.05 percent for a third meeting on March 28, almost three-quarters of a percentage point less than the euro- area benchmark.
The inflation rate dropped to 1.7 percent in February from 1.9 percent in January, below the central bank’s 2 percent target. Fourth-quarter gross domestic product shrank 0.2 percent from the previous three months, the fourth consecutive quarterly contraction. Household spending fell 3.5 percent in the full year of 2012, the first decline since 1998, the statistics office has said.
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