The Czech national bank cut interest rates yesterday, its step surprised economists and markets. The key rates were decreased by 50 bps. The two-week REPO rate is down to 3.75%, discount rate at 2.75% and lombard rate at 4.75%. The Czech currency fell briefly by CZK0.20 to 30.40 CZK/EUR, a moderate correction came lately. The reason for the cut was prevailing exchange rate of koruna and a revision of inflation forecasts. The most recent CNB’s estimates count on 2.0% to 3.4% inflation in April 2003. The ceiling for that time ranges between 2.7% and 4.7%. That means the CNB sees 50% chance of undershooting its inflation target.
Polish central bank took an action yesterday as well. At its meeting the PCB decided to cut its key 28-day intervention rate by half a point to 9.5%. Lombard and discount rate were lowered by 1%. The PCB wants to stimulate domestic demand, which is the weakest link in Polish economy. Deceleration of the demand together with EU recession was the main reason of Polish difficulties.
OECD forecasts GDP growth in the Czech republic to decelerate this year to 3.0% from 3.6% last year. The GDP is projected to pick up again in 2003 and reach 3.7%. Average rate of unemployment will likely to stagnate at 8.6% this and next year. OECD sees this year’s inflation at 3.2% and it projects its rise in 2003 to 3.3%. Fiscal policy is loose and needs to be tightened. Governmental deficit will likely to reach 8.7% of the GDP this year and 7.8% in 2003.
Index of Business climate (Ifo) in west Germany surprised markets by a fall to 90.5 points from 91.5 points in March. The index dropped in both of its two segments – valuation of current situation and confidence about future (6 months).
Swedish central bank (Riksbank) increased its key rates by 25 bps. The main REPO rate was raised to 4.25%.
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