Interview of Oldřich Dědek, Bank Board member
By Robert Müller (Reuters 17. 6. 2019)
Czech National Bank board member Oldrich Dedek sees no reason to vote for an interest rate increase next week, because the domestic economy is slowing down and global sentiment is tilted towards easing monetary policy, he said on Monday.
The central bank raised interest rates on May 2, using a window of opportunity created by easing economic risks abroad to act against rising domestic inflation, its eighth increase in the past two years.
The board decided unanimously to raise the main two-week repo rate by 25 basis points to 2.00 percent, but Governor Jiri Rusnok signalled stable rates until mid-2020.
Dedek, speaking before the June 26 policy meeting, endorsed that view as "credible".
"I don't see a reason (for tightening) at the nearest meeting. What comes later, whether the situation will worsen, I would not want to speculate," he told Reuters in an interview.
Since the bank's May meeting, inflation has accelerated to 2.9%, slightly above the central bank's forecast. But at the same time Germany cut its growth outlook for this year by a half, signalling possible trouble for the Czech exports.
More increases would go "against the tide" of global monetary policy, which is tilted towards easing, Dedek said. "... But I would not exclude it, in case domestic inflationary pressures turned out to be more pronounced than we think."
On the other end of the policy spectrum is board member Vojtech Benda, who said last week another increase may be on the cards.
The Czech economy slowed to 2.6% year-on-year growth in the first quarter, and the central bank expects it to maintain that pace in 2019 and 2020, when the bank foresees growth of 2.5% and 2.8%.
Although inflation almost reached the upper limit of the central bank's inflation target, set at 1% to 3%, the acceleration was mainly caused by volatile factors, like food prices, Dedek said.
"We should use the inflation target to the maximum extent, when inflation is within the target, then we more or less fulfill our mandate. It should thus not be a strong case for monetary policy tightening," he said.
He was not too concerned with the crown's being weaker than the 25.5 crowns per euro that the central bank forecast as the average rate for the second quarter.
A weaker crown eases monetary conditions, which may prompt the rate-setters to react by tightening policy.
"Personally, I don't support that schematic approach that when the exchange rate is weaker, then it should be balanced by higher interest rates," Dedek said.
The central bank intervened in the market to weaken the crown in 2013-2017, raising its foreign currency reserves. At the same time, it paused a previous programme of selling the yield on reserves to prevent their further growth.
Some board members have suggested the sales are expected to be renewed, but it is not likely to happen anytime soon. "We have not discussed it in the board yet," Dedek said.