Czech Policy Makers Want Clear Risk Outlook Before Acting

A majority of Czech central bank board members wants to see how inflation risks develop as policy makers contemplate whether to cut rates further, minutes from the Aug. 2 meeting showed.

The Prague-based Ceska Narodni Banka left the benchmark two-week repurchase rate at a record-low 0.5 percent last week, after cutting it by a quarter-point in June. Vice Governor Vladimir Tomsik and board member Lubomir Lizal voted for another quarter-point rate reduction on Aug. 2, while the four other members present voted for stable rates, according to the minutes published on the central bank’s website today.

The bank board said inflationary risks included uncertainty over commodity and food prices as well as a possibility of more changes to the value-added tax, the minutes showed. Anti- inflationary risks featured a possible delay in the euro area’s economic recovery and potential further government measures to cut the budget deficit.

“As information that would be available in the coming months might clarify the extent of these risks, a majority of the board members recommended a wait-and-see approach,” according to the minutes. “However, it was also said that a timely interest rate cut was the appropriate monetary policy response.”

The minutes don’t identify individual opinions expressed in the policy discussions.

Inflation jumped this year after the government raised the VAT rate. Rate setters are now estimating the effect of more increases the Cabinet plans to introduce next year and assess the effects of the euro-area debt crisis on the economy.

Parliament last month backed new measures, including a higher sales levy, to narrow the fiscal gap to within the European Union’s limit of 3 percent of gross domestic product next year.

To contact the reporter on this story: Peter Laca in Prague at

To contact the editor responsible for this story: Balazs Penz at

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