Czech central bank on hold; makes no major changes to economic and inflation outlook

The Czech central bank left the benchmark two-week repo rate unchanged at 0.05 percent on Thursday as widely expected. The central bank reiterated that it expected to scrap its cap on the crown exchange rate around mid-2017 when inflation is expected to pick up enough to meet the bank's 2 percent target.

The bank also reiterated it would continue using the exchange rate as an additional instrument for easing the monetary conditions. Consequently, policymakers reaffirmed the bank's commitment to intervene, if required, to weaken the koruna so that the exchange rate of the koruna against the euro is kept close to CZK 27/EUR.

There were no dramatic changes in the bank's economic and inflation outlook. The bank sees growth just under 3 percent in 2017-2018 and inflation at 2.3 percent in the fourth quarter of 2017. The new forecast only negligibly differs from the previous one and consequently has enabled the CNB to reaffirm its hard as well as soft commitments, i.e. an exit “not before 2017 Q2“.

"We don't think the Czech koruna will strengthen significantly following the lifting of the ceiling. With inflation likely to continue rising but remain low, the first interest rate hike won't come until after 2017," Capital Economics notes.