ČNB leaves key rates on hold

With the inflation risk low, the central bank left the key rate at a record low 0.75 percent; a 50bp hike over the coming year is possible

Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act | na serveru Lidovky.cz | aktuální zprávy Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act | foto: © ČNBČeská pozice
Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act

The Czech National Bank (ČNB) as expected left key interest rates on hold Thursday, voting 5–1 to leave its key policy rate at a record low 0.75 percent. Analysts said comments from Governor Miroslav Singer did not bring anything surprising, and merely confirmed that the ČNB is in no hurry to change the current interest rate setting.

Danske Bank analyst Stanislava Pravdova said the decision to leave rates on hold was fully in line with market expectations, and so the initial market reaction was fairly limited, with the Czech crown slightly weaker after the announcement. “The market response following the statement at the press conference was also quite limited, as the statement did not show any unexpected shift in the central bank’s stance,” she said.

Pravdova said that Eva Zamrazilová — “a notorious hawk” — was again the only bank board member voting for a 25 basis point rate hike. “However, she was the only dissenter within the ČNB board at this monetary policy setting meeting, and even Pavel Řežábek, who has recently sent some hawkish signals, did not join Mrs Zamrazilová in voting for rate hike.”

Komerční banka analyst Jiří Škop said the press conference was “overall neutral” and risks to monetary policy inflation, which is crucial for central bank decisions, are balanced (risks to overall inflation are on the upside due to planned VAT changes).

“Downside risks are weaker domestic price pressures and a slightly stronger Czech crown. Upside risks include commodity prices and the outlook for interest rates,” Škop said, noting that the most important aspect was the overall voting, which indicated that there are still only two members in hawkish camp — Zamrazilová and Kamil Janáček, who was not present for Thursday’s vote. ‘ČNB Governor Singer said the result of the vote was like an ice hockey game, and hockey fans know that even a closely balanced game can end up 5-1.’

“Thus, we will need another two members to join the hawkish camp on the bank board to see an increase in the ČNB key rate at the May meeting,” he said. “And indeed it seems that more members of the board are considering lifting their hands in favor of a hike, because ČNB Governor Singer said the result of the vote was like an ice hockey game, and hockey fans know that even a closely balanced game can end up 5-1.”

Danske Bank’s Pravdova said that looking further ahead, “we would expect inflation to stay below the ČNB’s inflation target for most of 2011, and we do not foresee any serious rise in inflation in 2012 and 2013 either.”

However, she noted that given that the European Central Bank (ECB) is likely to initiate monetary tightening this year and that the Polish and Hungarian central banks are also expected to hike rates further, “we could see some pressure on the ČNB to follow suit, to avoid a large depreciation of the Czech crown [... ] the main reason why we expect the ČNB to hike by a cumulative 50 basis points over the coming year.”