Interest Rate and Exchange Rate Forecasting in the Czech Republic: Do Analysts Know Better than a Random Walk?

The Czech National Bank (CNB) conducts a monthly survey to collect domestic and foreign analysts' forecasts of several economic and financial variables. Among these are the 2-week repo rate (which is the monetary policy interest rate set by the CNB), the 1-year Prague interbank offer rate and the CZK/EUR exchange rate. We ask whether the one-and twelve-month-ahead analysts' forecasts of these indicators are accurate for 2005-2012. Our findings indicate that the one-month-ahead forecast of the repo rate and the twelve-month-ahead forecast of the exchange rate made by the domestic analysts are free of systematic bias, superior to the random walk and directionally accurate. The same is true for the one-month-ahead foreign analysts' forecasts of the repo rate and the exchange rate. Unlike the domestic analysts' forecasts, however, the foreign analysts' forecasts are not efficient.