By Lenka Ponikelská (Bloomberg 18. 3. 2015)
The Czech economy doesn’t need a weaker koruna cap now and policy makers are ready to defend their current limit on the currency’s gains, according to central bank board member Jiri Rusnok.
Rusnok commented on economic developments, the koruna cap level and the exit from the regime in an interview in Prague on Tuesday.
On economic trends:
- “I don’t see any major changes in the economy since the last monetary-policy meeting, since the current forecast was presented”
- “The demand situation both domestic and abroad has improved. We see that some moderate growth continues”
- “The latest inflation data also didn’t deviate significantly from our forecast. Inflation developments are more or less in line with expectations, and are generally positive”
- “Employment and unemployment data have been improving for some time, and the external balance is also improving, which is seen in foreign trade and balance of payment statistics”
- “Although the annual headline inflation number is very low, that’s mainly because of the positive supply shock from energy prices. But even this shock is abating a little bit, which is related to the stronger dollar and the fact that fuel retailers stopped reducing prices at petrol stations”
- “Core inflation is stable, and it’s still holding in positive numbers”
- “Dollar developments are also influencing prices of other commodities, including food, and this is effectively having an impact of some monetary easing because stronger dollar is increasing the costs of such imports. I wouldn’t completely underestimate this effect”
- “Although wages aren’t rising very fast, there is some growth. This may start improving sentiment among people, it may translate into consumer behavior, which I think is a reason why we don’t need to fear a dramatic increase in anti-inflationary risks”
- “There is evidence that real wages are growing, which will be reflected in consumer spending sooner or later.”
On changing koruna limit:
- “I certainly don’t see anti-inflationary risks getting stronger”
- “For now, I don’t see a reason to shift the foreign- exchange commitment to a weaker level. We have said we can’t rule out such a decision if anti-inflationary risks evolve into a deflation-recession tendency causing stagnation or a decline in demand”
- “This certainly isn’t happening. On the contrary, anti- inflationary risks seem to be somewhat softening, and I don’t see a worsening outlook for domestic demand either. So the conditions we said would be needed for additional action aren’t being met”
- “Defending the current koruna commitment is another thing, and we have said we will defend it. But changing the rate to a weaker level is a different matter.”
On president’s comments:
- “We have to be independent and fulfill our mandate. I’m sure that our actions so far have been justified by the needs of the economy. I really don’t see a relevant reason for some hasty exit from the koruna commitment just because there are differing opinions about it”
- “I consider it still beneficial for the Czech economy in its current situation, or, at least, it’s not damaging it. It wouldn’t be good to bring additional instability through this channel at the time when there is enough uncertainty around us”
- “When you ask companies, they’re asking for stability and predictability more than whether the exchange rate is one koruna weaker or stronger”
- “What the central bank’s decision managed to do is to break the myth of a strong, stable Czech koruna. There was this myth here for years that the koruna should be stable no matter what, or that it can only strengthen. I’d say this ‘soft shock,’
- which brought down the myth, was a healthy thing for society and its thinking about its own currency.”
On timing of exit:
- “Introducing the exchange-rate commitment was used to deliver monetary-policy easing at a time when the central bank didn’t have an option to lower interest rates anymore. Applying the same logic, we should exit this regime at the moment when we see robust signals that we would normally have to raise interest rates. When we see this in our forecasts, on the monetary-policy horizon, then we should exit the regime”
- “This means the forecast showing inflation in the upper half of the tolerance range, or even slightly above the upper limit of the band on the policy horizon”
- “The exit and raising interest rates don’t have to happen simultaneously, I would even say it’s quite probable that they won’t happen at the same meeting”
- “We will prepare the exit so that it’s as smooth as possible. We have tools to prevent excessive foreign-exchange volatility”
- “There are several possibilities of how to conduct the exit. At this moment, we can’t rule out any option, be it exiting in one move, a gradual process, more-open or less-open communication, or a combination of those. We still have enough time. As we’ve said, it will be in the second half of 2016 at the earliest, which means it can also happen later than that.”