Oct 1 (Reuters) - Following is the full text of the minutes
from the Czech central bank (CNB) governing board's September 23
monetary policy meeting, released on Friday.
Present at the meeting: Miroslav Singer (Governor), Mojmir
Hampl (Vice-Governor), Vladimir Tomsik (Vice-Governor), Robert
Holman (Chief Executive Director), Kamil Janacek (Chief
Executive Director), Pavel Rezabek (Chief Executive Director),
Eva Zamrazilova (Chief Executive Director).
The meeting opened with a presentation of the sixth
situation report assessing the new information and its effect on
the fulfilment of the risks of the inflation forecast contained
in the fifth situation report. The new situation report assessed
the risks in relation to the forecast overall as being balanced.
Inflation in August had been just 0.1 percentage point lower
than forecasted; food prices had recorded less growth and
adjusted inflation excluding fuels and regulated price inflation
had also been lower. Lower inflation had been fostered by a
stronger exchange rate and the impacts of the proposed fiscal
consolidation. The inflationary factors had included published
data on higher household consumption and slightly faster wage
growth, a higher outlook for food price inflation and a higher
outlook for regulated price inflation due to an expected
increase in electricity prices.
In the discussion that followed the presentation of the
situation report, the prevailing opinion was that the risks of
the inflation forecast were balanced and that the appropriate
response was to leave rates at the current level. However, it
was also said that upside risks to inflation were emerging as a
result of the continuing domestic and external economic
recovery. It was said repeatedly that the current level of
monetary policy rates was low and could present a risk in the
longer term from the financial stability perspective. However,
the prevailing opinion was that the deciding factors for current
rate settings were the macroeconomic situation at home and
internationally and the outlook for that situation. In this
regard it was said that the risks of the forecast were moderate.
In the discussion of the risks of the inflation forecast,
some of the board members drew attention to certain upside risks
to inflation. Some agricultural commodity prices and import
prices in some sectors were rising. It was said that the
expected electricity price increase could spill over to other
price categories. The opinion was repeatedly expressed that the
upside risks to inflation were predominantly on the cost side,
but some were also emerging on the demand side. It was said in
the discussion that the rising prices of commodities and other
cost items did not represent a significant inflation forecast
risk and that annual growth in industrial producer prices had
been lower in August than in the preceding month. It was said
repeatedly that inflation expectations were well anchored and
that there was no danger to the fulfilment of the inflation
target.
Some of the board members expressed the opinion that the
unexpectedly higher growth in household consumption could
represent an upside risk to inflation. However, it was said
repeatedly that although household consumption was being
supported by higher-than-forecasted wage growth and
lower-than-forecasted unemployment, this higher consumption
growth was not reflected in current inflation. The new household
consumption data were also inconsistent with the retail sales
data. The opinion was repeatedly expressed that the unexpectedly
higher growth in household consumption and wages had no bearing
on the current monetary policy rate settings.
The Board discussed in depth the outlook for external
growth, which is an important condition for domestic economic
growth. It was said repeatedly that domestic exports were
largely dependent on German growth and exports. It was said that
the growth outlook for the Czech Republic's major trading
partners was positive and that the German economy was
experiencing renewed robust growth, which had clearly not been
affected by the discontinuation of the car-scrapping incentive
programme. However, it was said several times in the discussion
that the external economic growth outlook was encumbered with
uncertainty. External growth was returning, but there was a risk
of renewed slowdown. Certain indicators were signalling a
downswing in external growth, and the growth outlook for the
U.S. economy was also uncertain. Another factor acting against a
robust external growth outlook was the uncertain fiscal outlook
in some euro area countries. However, it was also said that the
external risks were balanced in relation to the inflation
forecast, because any high growth abroad would mean growth in
Czech exports and hence appreciation of the exchange rate, which
would have an anti-inflationary effect.
In the discussion of the domestic economic growth outlook it
was said that renewed growth could give rise to inflation
pressures given the low interest rates. The opinion was
expressed that expected growth next year would be more
sustained, but not robust enough to present an upside risk to
inflation given the current low capacity utilisation. It was
said that domestic economic growth was rising in spite of the
strengthening exchange rate and that domestic inflation
pressures would be suppressed by a stronger exchange rate. The
view was expressed that the strengthening exchange rate probably
posed a smaller risk to economic growth than in the previous
period. Besides a potential slowdown in external growth, the
expected electricity price increase would have a negative effect
next year, and the employment outlook was also uncertain. It was
said repeatedly that economic growth would be negatively, albeit
temporarily, affected by the planned fiscal consolidation via
household consumption. It was said again that the new regulatory
framework for the European financial sector and higher capital
requirements could also have a negative growth impact.
It was said that economic growth was recovering despite low
credit growth. However, low credit growth was not necessarily
inconsistent with gradual economic recovery, as the recent
crisis might have changed the behaviour and attitude to risk of
financial market participants. The opinion was expressed that
the ratio of demand deposits was increasing, thanks among other
things to the lowering of monetary policy rates in May, and that
this could pose something of a risk. It was said that a risk was
also presented by the currently negative ex-ante real deposit
rates, although real rates on new loans were positive and higher
than before the global financial and economic crisis erupted.
Higher real interest rates on new loans were consistent with the
gradual easing of the crisis. It was also said in the discussion
that the gap between short-term market rates and monetary policy
rates was stable and unchanging. However, it was also said that
this gap might narrow if the fiscal consolidation was
successful.
At the close of the meeting the Board decided by a majority
vote to leave the two-week repo rate unchanged at 0.75 percent.
Six members voted in favour of this decision: Governor Singer,
Vice-Governor Hampl, Vice-Governor Tomsik, Chief Executive
Director Holman, Chief Executive Director Janacek and Chief
Executive Director Rezabek. Chief Executive Director Zamrazilova
voted for increasing rates by 0.25 percentage point.
(Reporting by Mirka Krufova)
