Czech central banker Dedek still favours unchanged rates despite inflation surge

Interview of Oldřich Dědek, Bank Board member
By Robert Müller (Reuters 10. 6. 2022)

Czech National Bank board member Oldrich Dedek said on Friday he favoured a period of unchanged interest rates despite a further surge in inflation, reaffirming that policy as his preference while also ruling out a rate cut this year.

The central bank has raised its key rate by 550 basis points to 5.75% over the past year, including by 75 basis points at its last meeting in May. 

Dedek and fellow board member and incoming governor Ales Michl have both consistently voted for stable rates in a 5-2 split in favour of hikes.

Michl will succeed Jiri Rusnok, who stands down in July along with two other board members who have also backed increases. 

Dedek however said that no board "revolution of doves" was taking place, while markets expect at least a 100-basis-point hike at the June 22 policy meeting, Rusnok's last one in charge.

Dedek and Michl have said soaring inflation was mostly caused by supply-side effects, namely high energy and commodities prices and global supply-chain disruptions.

"I think that the story continues that we are facing supply shocks, which unfortunately show in other price sectors, namely in food prices (and)... which the central bank can do very little about," Dedek told Reuters in an interview.

"(The fresh inflation data) will probably spark a debate on how the monetary policy should react. I will stick to my approach."

Czech inflation rose to 16.0% in May, beating estimates, data showed on Friday. 

Asked if rate cuts could be considered already this year, he said: "The truth is that inflation is high... so thoughts about cutting rates are out of the question, for me at least."

Another important factor for the Czech central bank is the crown exchange rate, as a weaker currency would tend to be inflationary by generating higher import prices.

The crown rate will be influenced by the rate differential with the European Central Bank, which has signalled it will start tightening policy in July, with more hikes likely as it too battles stubbornly high inflation.

Dedek did not see this as a big problem.

"I think that the rate differential will remain generous even after the first hikes (by ECB), because we have one of the highest interest rates," he said.