Vladimír Urbánek (Kurzy.cz)
Markets  |  August 29, 2012 11:23:43

Licking (CNB): Zero or negative rates can not be ruled out, too strong crown suffocating economy


CNB Bank Board member Lubomir Lízal today to address further development of key interest rates indicated that any reduction in key interest rates to zero or negative level can not be ruled out in the near future. Crown recently strengthened significantly against the euro, just last month by 2.4%, which significantly harms strongly pro-export the Czech economy. It is estimated that a full 75 resulting GDP is generated exports.

Market estimates that the reduction in the basic interest rate from the current 0.5% to zero or minus to come by May next year. The market also believes that before the CNB proceeded on that rate cut, try to intervene directly against the crown. According to other estimates, the announced rate cut to zero or minus crown could weaken by up to 10%.

The final vote on the interest rate setting committee members voted 4-2 in favor of keeping rates. According to the CNB Vice-Governor Vladimir Tomsik while delaying further intervention only increases the risk that in the end it will be necessary to use a much more robust measures to avoid the risk of imminent deflation.
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