Tag Archives: monetary policy

Business Xpand – new forecast

According to the new forecast expected economic growth in the effective euro area will slow next year. This will reflect, among other things impact the outcome of the referendum in the UK on economic sentiment. In 2018, growth in the countries of our main trading partners will return to two percent. The decline in industrial producer prices in the euro area, mainly reflecting the low prices of energy commodities, have already begun to subside. Early next year, then these production rates will return to annual growth. Also, foreign consumer inflation will gradually increase. But even by the end of 2018 reaches two percent. View of three-month EURIBOR interest rate on the entire forecast horizon is negative. It thus reflects the still accommodative monetary policy of the European Central Bank. This contributes to consumer expectations of further weakening of the euro against the US dollar. Brent oil price outlook assumes a gradual increase.

The Forecast

The forecast assumes stable market interest rates at the current very low level and use the exchange rate as an instrument of monetary policy by mid 2017. Then, with the forecast consistent increase in market interest rates. Return to normal monetary policy will not lead to a sudden appreciation of slightly overvalued level before starting the intervention of the Czech National Bank. The reason is, among other things, that in the meantime there is a leak weaker koruna exchange rate on the price level and other nominal variables. The Board simultaneously again concluded that the possible appreciation of the exchange rate after leaving commitment to be dampened inter alia by ensuring exchange rate risks by exporters during the commitment period, as well as the closing of koruna positions by financial investors. The Czech National Bank will also be ready to intervene in order to mitigate exchange rate fluctuations.