Czech central bank offers alternative with slower rate rise

PRAGUE: The Czech National Bank presented on Friday an alternative scenario to its baseline forecast, with interest rates rising more slowly if the coronavirus's impact on the economy lasts longer, a risk the bank's board mentioned after its last meeting.

The central bank left interest rates unchanged on Thursday, while the board saw substantial risks to staff forecasts from more prolonged anti-pandemic measures than the outlook assumes.

Governor Jiri Rusnok has said that in such case there would be less need for monetary policy tightening.

The "Longer-lasting pandemic-induced downturn scenario" predicts slower growth of the interbank rate (PRIBOR), a proxy for the central bank's main rate.

In this scenario, the rate is projected to slightly drop first before rising towards 1% at the end of 2022, compared with gradual growth to just below 1.6% in the baseline scenario.

The baseline indicates the possibility of around three 25-basis- point rate increases, given the three-month PRIBOR currently at 0.36%, but the board has been more cautious on the pace of tightening.

The central bank will release details of its forecast on Feb. 12, together with minutes from the Feb. 4 policy meeting.

The central bank also presented a "hypothetical situation" of interest rates remaining unchanged this year, which projected inflation rising towards the upper border of the central bank's target band of 1% to 3%.

Board member Oldrich Dedek, who presented the forecast to analysts, said that the central bank would not sacrifice its inflation target.

"This scenario absolutely should not be read that the bank board will sacrifice the inflation target in order to prolong this relaxed monetary policy for longer than needed," he said.