Czech Central Bank Keeps Rates at Zero for Sixth MeetingPeter Laca and Krystof Chamonikolas
The Czech central bank’s chances of selling koruna for the first time in more than a decade are rising as opposing policy makers are softening their resistance, Governor Miroslav Singer said.
The Ceska Narodni Banka in Prague left its main interest rate unchanged for a sixth meeting at what it calls a “technical zero” of 0.05 percent, almost half a point below the European Central Bank’s benchmark. The seven-member board voted for the first time today on whether to start koruna sales, Singer told reporters today. The vote failed and Singer declined to disclose details of the ballot.
Zero rates have prompted central bankers to debate whether the first currency interventions since 2002 are needed to battle the longest Czech recession on record, which pushed inflation below the bank’s target. Rate setters are now balancing the risk of slowing price growth against signs the economy is approaching a rebound.
“The probability of starting currency interventions to further ease monetary policy is increasing, even compared with our previous meeting,” Singer said. “I think I can safely say that even some members opposing interventions are clearly shifting their views towards a higher probability that interventions will take place.”
The koruna has weakened 5.5 percent since Sept. 17, a day before Singer first signaled the bank may sell the currency. It traded 0.1 percent weaker at 25.969 per euro as of 4:47 p.m. in Prague.
The central bank is on untested ground with rates at zero and inflation running below its target as the $196 billion economy contracted for six consecutive quarters through March. The koruna has moved to the center of policy deliberations as its depreciation helps boost the competitiveness of exports and makes imports more expensive.
Singer signaled his preference for more monetary easing last week as risks that inflation will undershoot the bank’s goal eclipse signs of an economic revival. The bank would keep zero interest rates “in the long-term” even if monetary conditions were “relatively more relaxed,” he said in a July 23 interview.
While some indicators are showing signs that the Czech economy is starting to bottom out, the “qualitative picture” hasn’t changed much since the central bank’s last policy meeting in June, according to Singer.
The central bank’s new forecast, released today, assumes a decline in market interest rates to zero and doesn’t see a notable increase before 2015, it said. The bank lowered its 2013 gross domestic product estimate to a 1.5 percent contraction from a 0.5 percent decline.
“The forecast, with the existence of zero-bound monetary-policy rates, points to the need of relaxing monetary policy through other tools,” the bank said in a statement today.
Retail sales unexpectedly increased for a second month in June, and a gauge of Czech manufacturing performance rose for a third month. Even as the economic slump deepened in the first quarter, GDP data showed that consumer spending rebounded.
The HSBC Purchasing Managers’ Index, a gauge of manufacturing performance, rose for a fourth month in July to 52 from 51 in June, a report compiled by Markit, a financial-information company, showed today.
Inflation accelerated in June more than the central bank had forecast, to 1.6 percent from 1.3 percent in the previous month.
Price growth relevant to monetary policy and adjusted for the primary impact of changes in indirect taxes, quickened to 0.9 percent from a year earlier after 0.6 percent in May, staying below the central bank’s 1 percent to 3 percent tolerance band.