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Central European Weekly

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The NBS Increases its Economic Growth Forecast

Mon, Aug 4 2008, 06:19 GMT
by KBC Market Research Desk

KBC Bank

during the summer break there will be no central european weekly, we will resume the publication from september 01

Czech Republic

Next CNB Board meeting may be very exiting, but we still prefer a ‘on hold’ scenario.

Hungary

Inflation outlook has improved further on the back of lower oil prices

Poland

The FinMin remains (overly?) positive on inflation in 2008…

Slovakia

The NBS Increases its Economic Growth Forecast

The Week Ahead

CNB meeting and Czech inflation in focus

Overview

CNB and NBP: two central banks – two approaches

Last week showed how the central banks of the same region, confronted with similar macroeconomic situations, adopt completely different approaches to the formulation of their monetary policies.

On the one hand, the Czech and Polish economies are facing increasing inflation; and on the other hand, both the koruna and the zloty climbed to values that domestic exporters had not expected. While the CNB Board’s reaction was an aggressive reevaluation of its position, from slightly hawkish to purely dovish, the NBP has not been greatly disturbed by the strong zloty and maintains a tight monetary policy.

Of course, the Czech and Polish economies are not very similar to each other, and thus it is no wonder that the approaches of the respective Central Bank Boards are different; however, the difference in the approaches of those banks is not based on the mere fact that, for example, the Polish economy is far less open than its Czech counterpart, and thus the impact of a strong local currency on the Polish economy must be lower. The different reactions may also stem from the different historical experiences of the CNB and the NBP in managing inflation. While the Polish economy suffered from high inflation for a long time in the past, and the NBP had to try hard to curb it, the CNB’s inflation targets were above actual inflation on several occasions. And the current Members of the CNB Board were at one time the main critics of the monetary policy, which produced these results.

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Published on  Mon, Aug 4 2008, 06:25 GMT