Czech c-bank expectedly holds rates close to zero, says likelihood for FX interventions has increased

By bne IntelliNews August 2, 2013

The Czech central bank decided on August 1 to keep interest rates at record-low levels in line with market expectations and said the likelihood to launch koruna sales to further weaken the monetary conditions has increased.

The bank’s seven member board voted unanimously to keep the main two-week repo rate at 0.05% for the sixth straight meeting after cutting it down by 20 basis points in November, the bank said in a statement on its website. The Czech rate is at almost half a point below the European Central Bank’s main rate. The Lombard rate that provides a ceiling for short-term interest rates on the money market was left at 0.25% and the discount rate that represents the floor for short-term money market interest rates was kept at 0.05%.

The bank's current forecast assumes a decline in market interest rates to zero followed by a hike in 2015. The risks to the forecast are skewed towards a need for easier monetary conditions. The bank has for months said it is considering stepping into the currency market for the first time in more than a decade to weaken the koruna and help the ailing economy that has slipped to its longest recession on record. At the Aug 1 meeting the rate setters held their first vote on FX interventions and although the proposal failed to win majority support opposing policy makers have softened their resistance, governor Miroslav Singer said.

Following central bank comments, the koruna slightly firmed but later in the day retreated to 25.97 against the euro from Wednesday's close at 25.93, Reuters reported.

The bank said that it will keep rates at current record low levels until inflation pressures increase significantly. For now it does not sees such a threat.

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