Interview of Eva Zamrazilová, Bank Board member
(Reuters 23. 4. 2013)
* "Elements of stabilisation" apparent, points to property prices
* Cheaper gas, telecom services also to prop up spending
* Jan, Feb trade data show weaker FX did not help exports
* CZK sales appropriate if unit firmed "disproportionately"
The Czech Republic's longest recession in two decades has probably bottomed out and there are signs the economy is turning around, central banker Eva Zamrazilova said on Tuesday.
The central European economy has been mired in recession since the middle of 2011, dragged down by the euro zone's troubles as well as the centre-right cabinet's aggressive budget cutbacks.
The central bank trimmed its key two-week repo rate to 0.05 percent in November and said it would step in to the market to weaken the crown against the euro if it needs to ease further. Policymakers, fearing a slide into deflation, have said interventions would help avert expectations that prices of durable goods and real estate would fall further.
But Zamrazilova, an ardent opponent of easing on the council, said that while exports suffered, she had seen evidence property prices have already begun stabilising. Record low mortgage interest rates could lead to revival in the real estate market and from there to other parts of the economy.
"There are some stabilisation elements apparent, such as a halt in the fall of property prices mainly in Prague and signs of a possible revival of the property market," Zamrazilova said. "But this is only the first ray of light."
Lending data have shown mortgage loans rose by 6.2 percent on the year in February while the average interest rate hit a record low of 3.17 percent in March.
Zamrazilova said she expected households would begin spending more this year, relieved by the end of a series of tax hikes and encouraged by signs of lower gas and mobile phone prices.
RWE, a major gas supplier on the Czech market, said it would cut prices by 10 percent in May to maintain its market share. All three main telecom services providers slashed their unlimited calling rates by more than half this month.
"All this can contribute to confidence of households in a low-inflationary environment and untie their hands," Zamrazilova said. "In the second half of the year the revival could be seen in data from the economy."
ONLY IF CROWN JUMPS
Board members have been split on the urgency of interventions against the crown, which are assumed in the bank's staff forecast for the second half of this year.
The crown shed 3.6 percent since the start of the year to Tuesday's 17-month low at 25.995 to the euro. Its average rate in the second quarter so far is at 25.8, while the bank's latest forecast predicts it at 25.3.
Zamrazilova, however, has cautioned that the weaker crown could hurt household demand further by making imports more expensive, and that must be weighed against any positive impact from an export rise when considering interventions.
Data has also shown exports were still falling in the first two months of 2013 despite the weaker currency.
"When I see that even with the weak crown exports to large economies of the euro zone are falling, then I conclude that the primary factor is the level of demand for exports in these countries, which a crown weakening will not impact," Zamrazilova said.
She said she saw interventions as a tool to counter a potential sharp appreciation of the crown, something that would hurt exports and the wider economy, and further dampen prices.
"If the crown started to firm disproportionately, which does not seem very likely in the current unfavourable situation in the economy, then it would be appropriate to use interventions," she said.