CNB Monetary Policy: What Will Determine the Future Steps?

Transcription

1 16th Annual CFA Society Forecasting Dinner 218 CNB Monetary Policy: What Will Determine the Future Steps? Vojtěch Benda CNB Board member Prague, 28 February 218

2 Monetary policy normalisation: steps 1 4 FX commitment terminated in April 217. First step towards MP normalisation. Interest rate increases followed three times so far. % 5 CZK/EUR and monetary policy interest rates 4 CZK/EUR (right axis) 28 FX commitment (27 CZK/EUR) Lombard rate 2W repo rate Discount rate /8 1/9 1/1 1/11 1/12 1/1 1/14 1/15 1/16 1/17 1/18 2

3 The overall economic outlook is positive Forecasts of selected variables (annual percentage changes unless otherwise indicated) actual forecast forecast forecast Headline inflation GDP Average nominal wage Exchange rate (CZK/EUR) M PRIBOR (in %) Note: Headline inflation, GDP, exchange rate and M PRIBOR are actual for 217.

4 Economic growth is robust GDP growth forecast (annual percentage changes; seasonally adjusted) I/16 II III IV I/17 II III IV I/18 II III IV I/19 II III Economy will continue to be supported by growth in external demand, robust consumption of Czech households, strong domestic investment activity. 9% 7% 5% % confidence interval Growth of Czech economy will slow compared to last year, but will still exceed %. Czech economy will grow in line with its potential growth; output gap will remain slightly positive.

5 Structure of investment Investment by sector Investment by type of capital I/1 I/14 I/15 I/16 I/17-12 I/1 I/14 I/15 I/16 I/17 Non-financial corporations General government Households Financial corporations Machinery and equipment Buildings and structures Transport equipment Dwellings Non-profit institutions Gross fix. capital formation Intellectual property Cultivated resources Gripen Gross fix. capital formation (annual percentage changes; contributions in percentage points; constant prices; seasonally unadjusted) Upswing in private investment is fostering labour efficiency. Fall in government investment (EU-related investment cycle) has faded away.

6 The labour market is close to its capacity LUCI labour utilisation composite index Beveridge curve I/2 I/4 I/6 I/8 I/1 I/12 I/14 I/16 Vacancies Number of employed Number of unemployed Others LUCI Note: Index; vertical axis shows standard deviations. Labour market tightness is highest since 22. Labour demand continues to rise. Coupled with labour shortage, it will channel into continued rapid wage growth. 6

7 Inflation forecast: sustainable fulfilment of target Total inflationary pressures remain strong. Increasing wage dynamics and domestic economic growth. Domestic inflation will remain above 2% target this year. Will return to target at MP horizon. Headline inflation forecast (year on year in %) Monetary policy horizon 2 Inflation target 1-1 I/16 II III IV I/17 II III IV I/18 II III IV I/19 II III 9% 7% 5% % confidence interval 7

8 Monetary policy normalisation: further steps? Consistent with forecast is rise in domestic market interest rates this year and especially next year. Interest rate forecast (M PRIBOR in %) 4 2 Tendency towards rate normalisation. vs. ECB quantitative easing. 1 I/16 II III IV I/17 II III IV I/18 II III IV I/19 II III 9% 7% 5% % confidence interval At its February meeting, CNB Board unanimously increased two-week repo rate and Lombard rate. 8

9 Publication of FX forecast Czech National Bank is returning to publication of numerical forecasts for koruna-euro exchange rate. Return to previous level of transparency Exchange rate forecast (CZK/EUR, quarterly averages) I/16 II III IV I/17 II III IV I/18 II III IV I/19 II III 9% 7% 5% % confidence interval Fan chart form = emphasis on uncertainty and non-committal character of trajectory. Exchange rate forecast is conditional on assumptions of forecast, including outlooks for developments abroad. It is FX trajectory consistent with CNB macro forecast. Gives market useful guide to future monetary policy stance. 9

10 Summary CNB has taken initial steps towards monetary policy normalisation. Inflation will return to target thanks to strengthening of monetary policy conditions via both channels. Consistent with new forecast is rise in domestic market interest rates this year and especially next year. CNB has returned to publishing its CZK/EUR forecast. 1

11 Thank you for your attention Vojtěch Benda CNB Board member 11