Central bank board left interest rates unchanged today. The CNB expects to undershoot its net inflation target for end 2000 (target: 3.5-5.5%, forecast: 2.1-2.9%) and reach the taget for end 2001 (target 2-4%, forecast 2.0-3.7%). CNB expects consumer prices to grow by less than 4% at the end of 2000 and by 3.8-5.1% at the end of 2001. CNB upped its forecast for the 2000 GDP growth to 1.7-2.7%.
Thus, the CNB is rather bullish and counts on low inflation and faster economic growth. It expects import prices growth to ease and domestic demand to grow only modestly. The CNB even suggested that shrinking interest differential with the respect to the euro precluded it from considering an interest rate cut. On balance, we do not expect any changes in interest rates in a near future.
As the koruna is concerned, the vicegovernor Zdeněk Tůma indicated that the current exchange rate does not present a problem for the CNB, but that the central bank would prevent further appreciation. The koruna initially strengthened, but it then stabilized again at the level where it had started:35.55 CZK/EUR.
Patria Finance forecasts do not differ too much from the CNB's outlook. We, however, see a higher inflation at the end of this year. Even that should not, in our view, lead to monetary tightening by the end of 2000, though.
Consumer inflation forecasts of CNB, ministry of finance and Patria are as follows:
End of 2000: MF 4.1%; PATRIA 4.3%; CNB 3.3-3.9%.
End of 2001: MF 4.4%; PATRIA 5.5%, CNB 3.8-5.1%.
(Ondrej Schneider)