CNB sets 2006 inflation target at 2-4% upto euro

"The inflation target will be in force continuously until the Czech Republic joins the euro area, when the implementation of monetary policy directed at maintaining price stability will pass on to the European Central Bank (ECB)," Pavlina Bolfova told Interfax.

The central bank's current inflation targets, calling for inflation falling from 3 - 5 % in 2002 to 2 - 4 % by the end of 2005, were set three years ago.

"The new inflation target is a good starting point for future fulfilment of the convergence criteria and corresponds to the long-term inflation expectations of the financial markets," says the CNB.

The Czech inflation target has been set slightly above the price stability level declared by the ECB for the euro area. The ECB's aim is to keep inflation "below but close to 2%." "This small inflation differential reflects the long-term real convergence of the Czech economy towards the euro area average, which will continue for some time after the Czech Republic's accession to the euro area," says the central bank. The Czech Republic expects to adopt the single European currency in 2009 or 2010.

According to Bolfova, the CNB continues to see its inflation targets as medium-term targets from which actual inflation may deviate temporarily due to "exogenous shocks," such as deviations in world prices of energy raw materials or major deviations in agricultural producer prices.