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Czech: CNB stays on hold despite dovish signal from its new forecast

Fri, Nov 6 2009, 11:07 GMT
by KBC Market Research Desk

KBC Bank


Yesterday, the CNB Bank Board decided to keep interest rates on hold by a narrow 4-to-3 majority.

This was out of step with expectations following the release of the previous voting result, where both the Governor and the Vice-Governor had been in favour of cutting the key rate to 1%. Nevertheless, the close outcome of the vote shows that efforts were clearly made in certain quarters to reduce rates. One of the likely factors persuading the Board to leave rates unchanged was the latest central bank forecast discussed by the Board today. Not only did the central bank raise the inflation outlook for the end of next year to 2.4% (up from 1.9%), but also stated that the koruna’s exchange rate meant that there were upside risks to the forecast. This is somewhat surprising given that the crown’s depreciation, which saw it deviate from the forecasted level, was a short-lived episode influenced by interestrate expectations and the shifting risk aversion among foreign investors. It is worth bearing in mind that the increase in the inflation outlook can be attributed primarily to administrative factors which are out of the CNB’s hands (the hike in VAT and excise taxes, along with regulated prices).

Published on  Fri, Nov 6 2009, 11:08 GMT

KBC Bank  | Havenlaan 12, 1080 Brussels
http://www.kbc.be/dealingroom | piet.lammens@kbc.be

Legal disclaimer and risk disclosure

This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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