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Foreign Exchange

CNB Board expected to leave interest rates unchanged at November sitting.

CNB Board expected to leave interest rates unchanged at November sitting. The Governing Board of the Czech National Bank (CNB) will not change its policy at the monetary session on Nov 30, and thus interest rates would remain unchanged with the basic repo at 2.5%, analysts polled by CTK agreed. Factors in favour of stable rates are the favourable inflationary developments with the latest consumer price inflation data being significantly below the CNB projection and target band thanks to oil prices standing at below their long-term average, and the continuing CZK strengthening. On the other hand, CNB might be urged to tighten its monetary stance given the higher interest rates in the euro area, higher consumer spending boosted by the wages growth and the still fast loans expansion. However, analysts expect CNB to increase rates at begining-2007 at the earliest; in 2007 at least two rates’ hikes are expected in response to accelerating inflation resulting from the introduction of higher excise taxes on cigarettes, speeding up domestic demand and credit expansion, as well as due to the big gap with the euro area interest rate levels.

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