9th January 2015

Czech inflation and CZK exchange rate

According to the data available for the December 2014 the inflation of prices in 2014 fell to only 0.4 % to 1.4 % in year-on-year comparison. Also the consumer price growth was at its lowest point since 2003 and second lowest altogether. This present big challenge for the Czech National Bank as the inflation is deep below its 2% inflationary goal and even threatens to slip into unhealthy deflation. Although the CNB already reacted by weakening the Czech currency below the rate of 27 EUR/CZK in autumn of 2013 and in spite of the fact that the Czech currency is at present weakening to the level of 28 EUR/CZK and it still seems not enough. According to the analysts, for example David Marek from Deloitte, the Czech National Bankl has basically two or three possible options how to deal with the situation. First one is to weaken the currency even more and irritate both domestic population and foreign states and companies even more. Second one is to move the interest rates to negative digits that would require the Government and the Czech Parliament to change the legal framework. And eventually the third one is to extend its exchange rate commitment until the end of 2016. The Board of CNB also refused the possibility of ending the regime of intervention earlier doubting the effectiveness and helpfulness of such move.

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Members of the American Chamber of Commerce in the Czech Republic