Interview of Tomáš Holub, Bank Board member
By Robert Müller (Reuters 11. 12. 2019)
Czech central bank board member Tomas Holub said he was leaning towards voting again to raise interest rates at the bank's Dec. 18 meeting, because new data have not changed the domestic economy's current picture.
Holub voted in the minority on the Czech National Bank board to raise the main two-week repo rate by 25 basis points at the last policy meeting on Nov. 7 - the second straight sitting where a rate increase was on the table.
The 5-2 board vote last month kept the rate at 2.0%, where it has been since the last increase, in May.
Czech and central European growth has held up this year thanks to strong domestic demand, even as many major developed economies face slowdowns and their central banks eased policy to support them.
The board has based its debate on the bank's new quarterly economic outlook, which assumed two 25-point rate increases, one this quarter and one in the first quarter of 2020.
"I see it as slightly more than 50% that I will vote consistently with November, but I don't want to lock myself up in this," Holub told Reuters in an interview on Tuesday.
"The debate will be quite open for me on this, I don't even have the whole background. I rather keep both possibilities open," he said.
The Czechs are among the few in Europe still debating whether tighter policy is needed to rein in inflation. Monetary policy is pulled between weaker demand abroad and robust inflationary pressures at home, Holub said. Rate cuts were still off the table, he added.
Holub spoke just after data showed inflation accelerated in November, reaching its fastest pace in seven years at 3.1% year-on-year, just outside the upper range of the bank's tolerance band around its 2% target. It has run at or above the target since May 2018.
"I am not one of those who would stress the significance of breaching the tolerance band by a tenth (of a percentage point)," Holub said.
He said food prices were the main surprise but core inflation was largely in line. "This is not information which would change my overall thinking," he said.
At the same time in Germany, the export-reliant Czech Republic's main trade partner, industrial production unexpectedly fell in October, clouding the outlook for the euro zone.
"The picture still holds that foreign demand has slowed, it does not look like some recession, though, but should a revival come at the turn of the year, it will be hesitant," he said.
Holub said a stronger crown - whose gains had largely ignored central bank expectations in previous forecasts - may support keeping rates unchanged at the meeting next week.
"There may be a debate on the fact that the crown exchange rate surprised us mildly towards stronger levels after a long time, and that it brought at least part of the slight tightening of monetary conditions assumed by the forecast," he said.