FACTBOX-Key assumptions of Czech c.bank CPI forecasts

...  Following are selected forecast assumptions, and how they 
changed versus previous reports: 
 
    INTEREST RATE TRAJECTORY BUILT INTO ECONOMIC PREDICTION: 
    April 2007 - "A gradual rise in nominal interest rates over 
the entire forecast horizon." 
    January 2007 - "Broad interest rate stability initially and 
then a gradual rise in nominal interest rates at the forecast 
horizon." 
    October 2006 - "A gradual rise in interest rates." 
 
    HEADLINE ECONOMIC FORECASTS: 
 
 HEADLINE INFLATION         DECEMBER 2007       DECEMBER 2008 
  CPI (pct chng y/y)          3.2-4.2              2.7-4.1 
 
 MONETARY POLICY INFLATION  12-MTH OUTLOOK      18-MONTH OUTLOOK 
  CPI net of primary 
  effects of tax changes 
   (pct chng y/y)             2.1-3.5              2.2-3.6 
 
 GDP                             2007                2008 
  Real GDP (pct chng y/y)   4.9-6.5 (4.4-6.2)  3.8-6.8 (3.1-6.5) 
    NOTE. Forecasts from January in brackets. The CNB looks 
12-18 months ahead when setting interest rates, as it believes 
this is how long it takes for policy decisions to filter through 
fully to the economy. 
 
    ESTIMATE OF INFLATION NON-ACCELERATING GROWTH IN OUTPUT: 
    April 2007: around 5.5 percent at present, but converging to 
the 5 percent level in the long-run. 
    January 2007: slightly above 5 percent at present; long-term 
estimate at 5 percent. 
    October 2006: slightly below 5.5 percent at present; the 
long-term sustainable rate seen at 5 percent. 
    NOTE. The maximum speed that the CNB thinks the economy is 
capable of achieving without stoking demand pressure on prices. 
 
    ASSUMED 1-YEAR REAL EQUILIBRIUM MONEY MARKET INTEREST RATE: 
    April 2007: just under 1 percent. 
    January 2007: slightly below 1 percent; slowly declining on 
the forecast horizon. 
    October 2006: slightly below 1 percent; slowly declining on 
the forecast horizon. 
 
    ASSUMED ANNUAL EQUILIBRIUM REAL EXCHANGE RATE APPRECIATION: 
    April 2007: 3.0-3.5 percent, with a gradually declining 
tendency. 
    January 2007: 3.5-4.0 percent, with a gradually declining 
tendency. 
    October 2006: 3.5-4.0 percent, with a gradually declining 
tendency. 
 
    ASSUMPTIONS ABOUT NOMINAL EXCHANGE RATE OF THE CROWN: 
    April 2007: "In the remainder of 2007, the exchange rate of 
the crown against the euro will be close to its current levels 
... in the course of 2008 ... a trend of moderate nominal 
appreciation of the exchange rate will be renewed." 
    January 2007: "Over the entire forecast period, the exchange 
rate of the crown against the euro will be close to its current 
levels." 
    October 2006: "Over the entire forecast period, the exchange 
rate of the crown against the euro will be close to its current 
levels." 
 
    PUBLIC FINANCE DEFICIT (under EU's ESA 95 standards): 
    as pct of GDP               2007              2008 
    April 2007 forecast         3.5               3.4 
    January 2007 forecast       4.0               3.9 
 
  
  Keywords: CZECH ECONOMY/CENTRALBANK REPORT  
    

[Reuters/Finance.cz]