By David Barwick (MNI (mni-news.com), 16.4.2014)
The Czech National Bank may maintain its exchange rate policy beyond next February's first monetary policy meeting of 2015, Governor Miroslav Singer told MNI on Saturday.
Speaking on the margins of the Spring meetings of the IMF and World Bank, Singer said, "We are sure we will keep the policy in place until at least the first monetary policy meeting next year. There are risks we may actually keep it longer."
The CNB, which tries to keep annual inflation within one point in either direction around a target of 2%, has been relying on forex interventions as its main monetary policy instrument for a bit more than five months, having reached the lower bound a year previously with its two-week repo rate and discount rate, both at 0.05%.
As in the Eurozone and elsewhere, inflation in the Czech Republic has been very low recently, coming in at a four-year low of +0.2% on the year in each of the first three months of the year, and every time disappointing the CNB's respective monthly forecast of +0.4%.
"Two-tenths of a point is not a big difference," Singer affirmed. "We expect that inflation will gradually start rising again and that we will start reaching the target at the end of this year, but it is not a normal situation."
"There are obvious geopolitical risks," he noted. "We may see even less inflationary pressure from the external environment."
Still, "the real economy altogether - not only GDP, but industrial output, orders, exports - are surprising us in a positive way," he said, qualifying the surprise as "slight, not huge."
The crisis in Ukraine is exerting "no tangible economic influence yet on western Europe in general," he said. "So I don't think we should be harmed dramatically. But of course it is very difficult to assess."
Developments in the Eurozone are more or less as expected a year ago, Singer said, so that the ECB's policy stance came as no surprise.
Singer was noncommittal on the possibility of Czech euro adoption, observing that this was a political decision and that the current government, which would next face elections in four years, has not assigning priority to Eurozone accession.
In any case, Singer said, "I would hope that the decision for the euro is made at a time when it will be to the clear benefit of the country. The answer now is clearly no."
In other comments, Singer called the Czech banking sector "as always, strong and well capitalized. We have a nice banking sector."