(Updates throughout with Governor’s remarks)
PRAGUE, March 16 (Reuters) - The Czech central bank delivered a surprise 50 basis point rate cut on Monday and said it was ready to take further steps to soften the blow from the coronavirus outbreak.
The central bank cut its main two-week repo rate to 1.75% at an extraordinary meeting on the same day the crown lost more than 3% - its biggest one-day drop since the bank launched interventions in 2013 to weaken the currency.
Governor Jiri Rusnok told a news conference the bank did not consider it necessary to intervene against the crown’s fall at this point but did have a pain threshold and would act with its hefty foreign currency reserves if it needed to.
The rate cut came just over a month after rate setters hiked rates for the ninth time since 2017 to battle inflation, showing how quickly the coronavirus pandemic has upended the global economy by forcing shutdowns of travel, borders, cities and businesses.
“The situation is developing very dynamically,” Rusnok said. “I want to stress that we will, of course, on a daily basis watch the situation and consider further potential steps if it will be necessary.”
Rusnok said the Czech economy would see a “dramatic” impact but that it was impossible to say whether that meant stalling growth or an actual contraction.
He said that while inflation was now above target, there would eventually be rapid disinflation in the wake of the epidemic’s impact. The crown could not deliver the relevant monetary easing, he said.
The currency is being monitored as it hits multi-year lows, trading at 27.300 per euro, down 3.9%, at 1738 GMT.
Rusnok said the bank was not yet in a situation where it needed to intervene, and that FX moves could be seen as natural behaviour in an open economy amid turmoil.
The central bank took other measures on Monday, including raising the number of repo operations that provide liquidity to banks to three times a week from once. Bids would be met with zero spread to the repo rate.
The central bank further said it saw no liquidity shortage in the banking sector and that its capital position was robust.
It said it was reversing a previous decision to raise an extra countercyclical capital buffer rate on lenders to 2.00%, instead leaving it at 1.75%.
The bank added that it expected lenders to refrain from dividend payments due to high uncertainty in the economy.
Reporting by Jan Lopatka and Jason Hovet, additional reporting by Robert Muller; Editing by David Clarke and Mark Heinrich
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