If the exchange rate of the crown were to remain at a weaker level than the Czech National Bank (ČNB) predicts, there would be more room to introduce stricter monetary conditions through the interest component. This is based on the minutes of the May session of the ČNB bank board. The central bankers also confirmed that such a development would be more favorable from the perspective of financial stability, as stricter monetary conditions introduced through the exchange rate component would not have any dampening effects on household demand for loans. There was also agreement that the introduction of a stricter interest rate component of monetary conditions in 2H 2017 should be gradual so as not to lead to an increase in credit risk.
