The Czech central bank kept interest rates at a record low for a 14th meeting as a weaker koruna prevented a decrease in borrowing costs and the euro area’s debt crisis prompted policy makers to cut the outlook for economic growth in 2012 to zero.
The Ceska Narodni Banka’s board voted 6-0 to leave the benchmark two-week rate at 0.75 percent, a quarter-point below the European Central Bank’s main rate, in line with the forecasts of all 13 analysts in a Bloomberg survey. The new forecast assumes stable market interest rates in “the near term” and a “moderate decline” after that, Governor Miroslav Singer told reporters in Prague.
“A decrease can be seen only in the third and fourth quarters, which is not very relevant form a practical point of view because there will be new forecasts before then,” he said. “What is important is the stability in the nearest future.”
The economic outlook has worsened because of the crisis in the euro area, the market for about 70 percent of Czech exports. The bank lowered its forecast for this year’s gross domestic product growth to zero from 1.2 percent, and to 1.9 percent next year from a previous 2.7 percent. The Finance Ministry cut its 2012 gross domestic product estimate on Jan. 31 to near-zero growth and didn’t rule out a recession.
The central bank’s new forecast sees the koruna at 24.9 to the euro, weaker than the 23.1 rate predicted in November, while the estimate for the average three-month Prague interbank offered rate rose to 1 percent from 0.9 percent. The three-month Pribor was 1.18 percent today and forward-rate agreements fixing the ask three-month rate in six-months were quoted at 1.11 percent.
“Given the expected recession in the eurozone and in the Czech Republic, and an absence of demand-driven inflationary pressures, the central bank is unlikely to start raising interest rates anytime soon,” Michal Brozka, an analyst at Raiffeisenbank AS in Prague said. Raiffeisenbank sees a quarter-point rate reduction in the first half of the year, although a weaker koruna may prevent such a move, he said.
The Finance Ministry cut its forecast for 2012 economic growth to 0.2 percent from 1 percent and said the outlook carried downside risks.
Developments in the koruna influence the central bank’s policy approach as a stronger currency tames inflationary pressures and tightens monetary conditions by making Czech exports more expensive, while a weaker koruna makes imported goods cost more. The central bank also uses the outlook for the euro area’s market interest rates among variables in its forecasts. Today’s projections assumed a three-month Euro interbank offered rate, or Euribor, at 1 percent in 2012.
The koruna has lost 3.4 percent to the euro in the past six months, the fourth-worst performance among 25 emerging-markets currencies tracked by Bloomberg. It rose 0.23 percent to 25.117 against the euro as of 2:58 p.m. in Prague, after strengthening 0.5 percent yesterday.
Poland left its main rate unchanged at 4.5 percent for a sixth meeting on Jan. 11 and said the probability of interest-rate cuts has declined as the weaker zloty fuels inflation pressure. Hungary kept its rates on hold at 7 percent on Jan. 24 as local assets rose from record lows after Premier Viktor Orban said he would yield in a row with the European Union that has held up talks on an international bailout.
The Czech economy shrank 0.1 percent in the third quarter from the previous three months, the first quarterly contraction since a 2009 recession. GDP growth slowed to 1.2 percent from a year ago in the July-September period, from 2 percent in the previous quarter.
Inflation was 2.4 percent in December, slowing from a 3-year high of 2.5 percent in November, while remaining above the central bank’s 2 percent target for a third month.
Consumer-price growth will rise “temporarily” to just above 3 percent in 2012 because of an increase in the value-added tax rate before slowing again below the target in 2013, the bank said in a text outlining the forecasts.
The bank lowered its forecast for the headline inflation rate in the first quarter of 2013 to 1.5 percent from November’s 1.6 percent prediction, while keeping its second- quarter 2013 estimate unchanged at 1.5 percent.