Central Bank Holds Rates At 2%William Malcolm
The Czech Central Bank left interest rates unchanged. The board voted to keep the benchmark rate at 2 percent.
The decision mirrors the stance applied by rate setters in the European Union‘s eastern wing and contrasts with easing steps taken by the U.S. Federal Reserve and the European Central Bank.
Central European growth has held up this year thanks to strong domestic demand even as many major developed economies, including Czech Republic’s biggest trade partner Germany, face slowdowns and their central banks ease policy to support them.
The Czechs are among the few in Europe still debating whether tighter policy is needed to rein in inflation, which has run at or above the 2% midpoint of the central bank’s target range since May 2018.
“This contradictory (foreign and domestic) situation means the board has to weigh the delicate differences whether to lean toward the recommendation of the forecast or not,” Bank Governor Jiri Rusnok said.
He said the main argument for unchanged rates was the slowdown abroad, and some Czech companies were already seeing a drop in orders and capacity cuts.
The outlook’s recommendation for rate hikes was based on the perceived need to quell domestic inflationary pressures, with a drop in rates following from the middle of next year.
The central bank has one more policy meeting this year, and Rusnok said not following the forecast’s implications would not raise inflation by more than 0.2 percentage points compared with the forecast path.