Czech Central Bank Should Be Ready to React to Crisis, OECD Says

The Czech central bank should be ready to react to “downside risks” to the economic outlook as the euro-area’s sovereign-debt crisis hurts growth prospects, the Organization for Economic Cooperation and Development said.

The Prague-based Czech central bank has left the main rate at a record-low 0.75 percent since May 2010 as inflation remained near its 2 percent target. Earlier this year the bank debated when to raise rates, before changing on Nov. 3 its base-line forecast to a decline in borrowing costs by the end of the year. Governor Miroslav Singer said the next rate move may be in any direction.

The economic outlook has worsened as the crisis in the euro area damps demand in the country’s main market for exports. Gross domestic product will rise 2.1 percent this year and slow to 1.6 percent in 2012, according to forecasts in the OECD report published today. Both growth forecasts are higher than the central bank’s estimates.

“At the current juncture, monetary policy should be ready to react as downside risks for the economic outlook stemming from economic conditions in the euro area materialize,” the OECD said in its Economic Survey. “In this context, it’s welcome that the Czech National Bank has expressed preparedness to move its interest rates in either direction.”

The central bank’s latest outlook, released Nov. 3, sees the inflation rate rising to 2.8 percent in the fourth quarter of next year mainly because of an increase in the lower bracket of the value-added tax from January. Monetary-policy inflation will move “lightly under the inflation target” of 2 percent through the first quarter of 2013, the forecast said.

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