Feb 12 (Reuters) - Following is the full text of the minutes
from the Czech central bank (CNB) governing board's Feb. 4
monetary policy meeting, released on Wednesday.
Present at the meeting: Zdenek Tuma (Governor), Mojmir Hampl
(Vice-Governor), Miroslav Singer (Vice-Governor), Robert Holman
(Chief Executive Director), Pavel Rezabek (Chief Executive
Director) and Vladimir Tomsik (Chief Executive Director).
The meeting opened with a presentation of the first
situation report containing the new macroeconomic forecast.
Headline inflation had risen in 2009 Q4, but had remained below
the lower boundary of the tolerance band around the inflation
target. The year-on-year contraction in real GDP had moderated
in 2009 Q3, while in quarter-on-quarter terms economic activity
had risen for the second consecutive quarter. The decline in
employment had deepened further and unemployment had increased.
However, average nominal wage growth had accelerated. Import
prices were anti-inflationary. According to the forecast, no
domestic inflation pressures were currently visible.
The February forecast predicted that inflation would
gradually rise during 2010. Owing to tax changes, it would
temporarily increase slightly above the inflation target of 2
percent in the second half of the year. Monetary-policy relevant
inflation would approach the target from below. From 2010 Q1,
economic activity would return to moderate year-on-year growth.
However, stronger growth would be prevented by weakening
household and government consumption and uneven growth in
external demand. Economic growth was expected to reach 1.4
percent in 2010 and to speed up slightly to 2.1 percent in 2011.
According to the forecast, the nominal exchange rate would
appreciate gradually. Consistent with the forecast was stability
of short-term interest rates close to current levels in the
first half of this year and a gradual rise in rates thereafter.
In the discussion that followed the presentation of the
situation report, the Board agreed that it was appropriate to
leave interest rates unchanged. The prevailing view was that the
overall balance of risks to the forecast was balanced. An
opinion was also expressed emphasising the upside risks to
inflation connected with wage growth, although these risks were
associated with greater uncertainty for the time being. On the
other hand, downside risks to inflation were also mentioned,
namely the fall in expected market rates in the euro area and
the persisting low economic activity, in respect of which a more
robust recovery could be expected only in 2011. Some of the
board members stated that the decision-making on monetary policy
interest rates was going on in an environment of less
uncertainty than in past months.
It was said repeatedly that the domestic economy was slowly
rebounding and emerging from recession and that an asymmetrical
W-shaped recovery in external demand could be expected. The
domestic inflation pressures were currently not very strong, but
a gradual build-up of inflation pressures could be expected as
the recession faded.
The Board discussed the implications of producers' currently
squeezed profit margins for future inflation. It was said that
in the longer run margins would probably rise to the usual level
and exert pressure on inflation. On the other hand, opinions
were expressed that the reactivation of current excess
production capacity would not necessarily have inflationary
effects. For the same reason, a rapid recovery in investment
could not be expected. The discussion also covered the
uncertainty surrounding the rate of growth of potential output.
The opinion was expressed that the economic crisis had not
affected the long-run rate of growth of potential output. It was
also said, however, that the rate of growth of potential output
assumed by the current forecast was on the optimistic side, even
though it had been temporarily reduced relative to the long-run
rate on the basis of expert estimates.
The Board then discussed the labour market. It was said that
year-on-year average nominal wage growth in the business sector
was surprisingly high given the low economic activity. However,
it was said that the observed growth to some extent reflected
changes in the employment structure due to lay-offs of low-wage
and high-sickness-rate employees and that, moreover, the wage
growth figures were at variance with the national accounts
statistics. It was said that inflation pressures caused by wage
growth could be expected not to emerge until 2011.
It was said several times that the fiscal policy outlook
would be a major factor as regards the future path of the
economy. In this context, it was said repeatedly that the fiscal
outlook was associated with considerable uncertainty. It was
said that the risk of an increasing general government deficit
could be regarded as significant.
The Board discussed the outlook for net exports in relation
to the recovery in external economic activity. In this context,
mention was made of the considerable uncertainty regarding the
goods and services balance data and the corresponding financial
flows.
The spread between interbank market interest rates and the
monetary policy rate was discussed. The opinion was expressed
that the faster-than-forecasted decline in the spread between
short-term interest rates and the monetary policy rate might
represent an upside risk to inflation going forward. However,
opinions were conversely also expressed emphasising the downside
risk of the opposite scenario.
At the close of the meeting the Board decided unanimously to
leave the two-week repo rate unchanged at 1 percent. Governor
Tuma, Vice-Governor Hampl, Vice-Governor Singer, Chief Executive
Director Holman, Chief Executive Director Rezabek and Chief
Executive Director Tomsik voted in favour of this decision.
(Reporting by Mirka Krufova)
