Czech maintains rate and FX commitment, as expected

    The central bank of the Czech Republic held its benchmark two-week repo rate steady at 0.05 percent and reiterated its commitment to intervene in foreign exchange markets to keep the koruna currency below 27 to the euro.
    The Czech National  Bank (CNB), which has been using the exchange rate as an additional tool to ease monetary policy since November 2013 and is currently committed to keeping the cap on the koruna's exchange rate until at least the second half of 2016.
    Last month the CNB raised its inflation and growth forecasts, with inflation seen at 1.5 percent in the second quarter of 2016 and 2.0 percent in the third quarter of 2016.
    The forecast for growth this year was unchanged at 2.6 percent while the forecast for 2016 Gross Domestic Product growth was raised to 3.2 percent from 3.0 percent forecast in February.
    Inflation in the Czech Republic rose to 0.7 percent in May from 0.5 percent in April while GDP jumped by a higher-than-expected 3.1 percent in the first quarter from the fourth quarter for annual growth of 4.2 percent, up from 1.4 percent in the fourth quarter of last year and the fastest rate since the second quarter of 2008.
    The koruna has risen since the release of the strong growth figures, trading at 27.2 to the euro today, the strongest level since November 2013.
    Last month the International Monetary Fund said the Czech economy was growing strongly, with both exports and domestic demand performing well and growth is expected to accelerate to 3 percent this year and stabilize around 2.5 percent in the medium term. Inflation is first expected to rise toward the CNB's 2.0 percent target in 2016 and remain low this year.

 
    The Czech National Bank issued the following statement:

"The CNB Bank Board decided at its meeting today to keep interest rates unchanged. The two-week repo rate was maintained at 0.05%, the discount rate at 0.05% and the Lombard rate at 0.25%.

The CNB Bank Board also decided to continue using the exchange rate as an additional instrument for easing the monetary conditions and confirmed the CNB’s commitment to intervene on the foreign exchange market if needed to weaken the koruna so that the exchange rate of the koruna against the euro is kept close to CZK 27/EUR.

The CNB Bank Board repeated that it regards the commitment as one-sided. This means that the CNB will prevent excessive appreciation of the koruna below CZK 27/EUR by intervening on the foreign exchange market, i.e. by selling koruna and buying foreign currency. On the weaker side of the CZK 27 level, the CNB is allowing the koruna exchange rate to float according to supply and demand on the foreign exchange market."

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