The Czech National Bank left its weapons at bay as widely expected. The key repo rate remains at 0.5%, all-time low. However, two MPC members voted for additional 25 bps rate cut. The central bank significantly changed its macro forecast. GDP projection for 2012 was cut from 0.0% to -0.9% (our forecast -1.0%), forecast for GDP growth in 2013 decreased from 1.9% to 0.8%. Significant deterioration of external economic conditions as well as sluggish domestic demand was mentioned as the key factors behind worsening outlook for the Czech economy.
Inflation forecast for next 4-6 quarters includes recently adopted changes in VAT rates and, thus, it has increased from 1.4% to 2.3%. Taking all together, the CNB considers that its macro forecasts imply 3M PRIBOR at 0.3% in 2013, while previously assumed level was 1.0%. There is one more chance for the rate cut in the Czech Republic. However, we can expect that objections about effectiveness of the incremental change with interest rates already close to zero would be raised.
CNB’s repo: 0.5%