Interview of Vojtěch Benda, Bank Board member
By Jan Lopatka (Reuters 8. 12. 2020)
The Czech central bank will need to consider raising interest rates next year if economic data continue to show pro-inflationary signs, central bank board member Vojtech Benda said in an interview.
Benda said data in the past month on growth, wages and the labour market have been more positive than the bank's baseline forecast, which foresees a rise in rates next year, although the need for tighter policy has been partly offset by a stronger exchange rate.
A massive tax cut being discussed in parliament would bring a shift toward the bank's alternative fiscal-policy-fuelled, higher-growth scenario next year, he said.
A possible tightening of anti-pandemic measures would not change the overall picture, because the bank's outlook anticipates only the slow removal of restrictions, Benda told Reuters.
"The real economy shifts the balance of risks rather in the pro-inflationary direction, but this is being partially compensated by firming of the exchange rate," Benda said.
"If this development continues in line with the forecast, the question will arise next year when we begin to tighten monetary policy again."
He said did not expect the bank would have to consider more easing.
The bank's Nov. 5 baseline forecast assumes a rise in short-term market rates, a proxy for official rates, from the current 0.35% to 0.6% in the second quarter and 1.1% in the fourth quarter of 2021.
The governing board said it saw the official repo rate staying at 0.25% longer than the forecast assumption.
Benda said he was comfortable with the baseline. He said, however, that he did not expect the board to act even faster on the basis of the tax cut.
"The overall tune of the bank board has long been rather dovish than hawkish, the bias is rather not to start monetary policy tightening prematurely," he said. "The board will be probably very cautious in tightening policy and will wait for a strong signal that we are beyond the turning point."
Benda had repeatedly voted for tighter policy against the majority before the pandemic. He voted with the board to slash the repo rate by 200 basis points between March and May after the pandemic started, the biggest easing in Europe.
The market is pricing in a 25-basis-point increase within nine months, based on forward rate agreements.