Czech Policy Makers Split on Non-Standard Policy Easing

Czech central bankers were split last week on whether the economy needed monetary-policy easing beyond rate cuts, even as they agreed koruna weakening is the preferred path for such action, minutes from the meeting showed.

Governor Miroslav Singer, Vice Governors Mojmir Hampl and Vladimir Tomsik and board members Kamil Janacek and Lubomir Lizal voted Sept. 27 to cut the benchmark two-week repurchase rate by a quarter-point to a record-low 0.25 percent, the minutes published on the bank’s website today showed. Eva Zamrazilova and Pavel Rezabek voted for stable borrowing costs.

The bank board discussed possible further actions it may consider if a additional monetary-policy easing is necessary, according to the minutes.

“It did not agree on whether such actions were needed,” the bank said in the minutes, which don’t disclose opinions of individual board members. “In connection with the discussion of the koruna exchange rate, however, the option of taking actions that would directly affect the exchange rate was preferred.”

The board agreed that the domestic economy was subdued and anti-inflationary, according to the minutes. Koruna gains prior to the meeting were “surprising” and a “stronger appreciation would need to be taken sufficiently into account in future monetary-policy deliberations,” the bank said in the minutes.

The Czech rate cut widened the gap with the European Central Bank’s main rate to 0.5 percentage point. A stronger koruna tames inflation by making imports cheaper, while a weaker currency eases conditions for exporters.

The Czech economy is suffering from weak domestic demand after the government cut investments and raised sales taxes to trim the budget deficit. While a trade surplus remains, the debt crisis has curbed purchases of electronics and cars. The 27- nation European Union buys 80 percent of Czech exports, including from companies such as carmaker Skoda Auto AS.

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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