Czech policy makers kept their koruna ceiling in place for a fifth meeting and said they won’t scrap the limit on the currency’s gains before the second quarter of 2015 due to slower inflation (CZCPYOY) at home and abroad.
The central bank kept the benchmark interest rate at 0.05 percent for a 13th meeting, matching the estimates of all 18 analysts in a Bloomberg survey.
Policy makers also reaffirmed a commitment not to let the koruna “strengthen too much” beyond 27 per euro, the limit on the currency pair set on Nov. 7.
Even as the economy is rebounding from the longest recession on record, the central bank is delaying its shift to tighter policy prices growing at a slower pace than it initially expected.
“Significantly more subdued” inflation abroad, the outlook for slower growth in food and regulated prices and less expansionary fiscal policy plans are reasons for the “greater need” for a delayed exit from the currency regime, Governor Miroslav Singer told reporters in Prague.
“The bank board stated that the CNB won’t stop using the exchange rate as a monetary-policy tool earlier than the second quarter of 2015, and it didn’t rule out delaying the end of this regime further,” Singer said.
“We agreed that at this moment, with the anti-inflationary risks that we see now, there is no need to discuss” moving the koruna ceiling to a weaker level.
Currency Focus
The koruna has weakened 6.2 percent against the euro since the November interventions, more than its central European peers such as the Hungarian forint and the Polish zloty.
The Czech currency weakened 0.1 percent to 27.455 per euro as of 2:48 p.m. in Prague. Interventions in currency markets took the spotlight after the central bank cut its main rate to what it calls a “technical zero” of 0.05 percent in 2012.
The easing mirrors non-standard steps taken by global monetary authorities from the U.S. Federal Reserve to the Bank of Japan.
It’s aimed at meeting the Czech central bank’s price stability mandate, defined as an inflation target of 2 percent plus or minus 1 percentage point.
Inflation accelerated to 0.4 percent from a year earlier in May from 0.1 percent in the previous month. That was below the central bank’s 0.6 percent forecast for the month.
The regulator sees economic growth at 2.6 percent this year and 3.3 percent in 2015, according to its latest forecast published in May. It projects inflation at 2.3 percent in the second quarter of 2015 and 2.2 percent in the third quarter.
Forecast Horizon
Weakening the currency helped avert deflation, according to Singer. After the bank scraps the intervention regime, it will probably wait for some time before it starts raising interest rates, he said, without giving a more specific outlook.
“At the forecast horizon, the return to conventional monetary policy won’t imply an appreciation of the exchange rate to the level seen before,” Singer said.
Since November, statistics office data have shown a faster economic expansion, rising retail sales and improved business sentiment.
The Czech economy grew 2.5 percent in the first quarter, the fastest on an annual basis in three years, after 1.1 percent growth in the previous three months.
Retail sales rose for a sixth month in April, increasing 6 percent from a year earlier. The economic sentiment indicator rose to 8.3 in June, the highest reading since February 2011.
“The central bank will be under little pressure to tighten monetary conditions for a long time,” William Jackson, an emerging-markets analyst at Capital Economics Ltd. in London, said by e-mail today.
“The exchange rate target is likely to be unwound in the first half of 2015 at the earliest. And the first rise in interest rates is likely to come in 2016.”
bloomberg.com
The central bank kept the benchmark interest rate at 0.05 percent for a 13th meeting, matching the estimates of all 18 analysts in a Bloomberg survey.
Policy makers also reaffirmed a commitment not to let the koruna “strengthen too much” beyond 27 per euro, the limit on the currency pair set on Nov. 7.
Even as the economy is rebounding from the longest recession on record, the central bank is delaying its shift to tighter policy prices growing at a slower pace than it initially expected.
“Significantly more subdued” inflation abroad, the outlook for slower growth in food and regulated prices and less expansionary fiscal policy plans are reasons for the “greater need” for a delayed exit from the currency regime, Governor Miroslav Singer told reporters in Prague.
“The bank board stated that the CNB won’t stop using the exchange rate as a monetary-policy tool earlier than the second quarter of 2015, and it didn’t rule out delaying the end of this regime further,” Singer said.
“We agreed that at this moment, with the anti-inflationary risks that we see now, there is no need to discuss” moving the koruna ceiling to a weaker level.
Currency Focus
The koruna has weakened 6.2 percent against the euro since the November interventions, more than its central European peers such as the Hungarian forint and the Polish zloty.
The Czech currency weakened 0.1 percent to 27.455 per euro as of 2:48 p.m. in Prague. Interventions in currency markets took the spotlight after the central bank cut its main rate to what it calls a “technical zero” of 0.05 percent in 2012.
The easing mirrors non-standard steps taken by global monetary authorities from the U.S. Federal Reserve to the Bank of Japan.
It’s aimed at meeting the Czech central bank’s price stability mandate, defined as an inflation target of 2 percent plus or minus 1 percentage point.
Inflation accelerated to 0.4 percent from a year earlier in May from 0.1 percent in the previous month. That was below the central bank’s 0.6 percent forecast for the month.
The regulator sees economic growth at 2.6 percent this year and 3.3 percent in 2015, according to its latest forecast published in May. It projects inflation at 2.3 percent in the second quarter of 2015 and 2.2 percent in the third quarter.
Forecast Horizon
Weakening the currency helped avert deflation, according to Singer. After the bank scraps the intervention regime, it will probably wait for some time before it starts raising interest rates, he said, without giving a more specific outlook.
“At the forecast horizon, the return to conventional monetary policy won’t imply an appreciation of the exchange rate to the level seen before,” Singer said.
Since November, statistics office data have shown a faster economic expansion, rising retail sales and improved business sentiment.
The Czech economy grew 2.5 percent in the first quarter, the fastest on an annual basis in three years, after 1.1 percent growth in the previous three months.
Retail sales rose for a sixth month in April, increasing 6 percent from a year earlier. The economic sentiment indicator rose to 8.3 in June, the highest reading since February 2011.
“The central bank will be under little pressure to tighten monetary conditions for a long time,” William Jackson, an emerging-markets analyst at Capital Economics Ltd. in London, said by e-mail today.
“The exchange rate target is likely to be unwound in the first half of 2015 at the earliest. And the first rise in interest rates is likely to come in 2016.”
bloomberg.com
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