MNI CNB WATCH: 2W Repo Rate Held At 3.5%, Decision Unanimous

Members of the Czech National Bank’s Band Board voted unanimously in favour of leaving interest rates unchanged on Wednesday, with the decision statement and guidance unchanged. (See MNI EM CNB WATCH: Rate Hold Expected Despite Slower Inflation)

Explaining its decision, which was widely anticipated, to hold the 2-week repo rate at 3.5%, the CNB said that while headline inflation had declined from 2.9% in June to 2.5% in August - in line with its own expectations - core inflation remains stubbornly close to 3%.

Services inflation and the contribution of property prices to inflation remain “particularly elevated,” the Bank said, with the balance of risks to in the outlook seen as “inflationary overall.”

“As regards domestic inflationary risks, the risk of inertia in services inflation, including imputed rent, and in food inflation persists. A potential acceleration of money creation in the economy stemming from a further strengthening of lending activity, especially on the property market, is also an inflationary risk," it said.

“Potential additional growth in total public sector spending would lead to a risk of fiscal policy having an even greater inflationary effect. Continued rapid wage growth related to persistent tightness in the labour market is an additional inflationary risk.”

Continued koruna strength and a weaker global economy could help dampen inflation in the months ahead, the Bank said, though the launch of the EU's Emissions Trading System 2 (ETS 2) is an additional source of upside risk. (See MNI SOURCES: Doubts Over EU Carbon Pricing Key For ECB Rates)