By Leos Rousek (Dow Jones Newswires, 7.12.09)
Czech central bank board member Pavel Rezabek Friday said he continues to evaluate whether a further policy easing will be more effective than maintaining the current headline interest rate unchanged at a record low of 1.25%.
"Without preempting my actual decision, I still ponder whether the stability remains to be a better option than another easing," Rezabek told Dow Jones Newswire in an interview 12 days ahead of bank's rate-setting meeting, its last in 2009, scheduled for Dec. 16.
Without saying so explicitly, Rezabek hinted that given the current circumstances, including also the recent stabilization of the koruna exchange rate against the euro, it maybe appropriate to leave interest rates unchanged.
"I think one needs to take a cautious approach rather than react to short-term impulses," Rezabek said, adding that he prefers taking longer-term views on his policy decisions by sticking to established trends.
At the previous two monetary policy meetings of the central bank seven-person policy board, held in November and September, Rezabek voted to keep the headline interest rate unchanged.
In all Rezabek has attended six out of seven central bank's monetary policy meetings so far in 2009, voting three times for a 25 basis point cut and once for a 75 basis point easing.
The bank holds eight rate-setting meetings annually. As of 2010, the bank will lower its inflation target to a range between 1% and 3%, from the current 2%-4% range.
With the annual inflation declining 0.2% in October after being flat in September, the bank is currently undershooting its inflation target. However, the bank expects inflation to accelerate to within its target range in 2010.
Three board members, including Governor Zdenek Tuma, voted for a 25 basis point cut last month, against four members, including Rezabek, opting for keeping rates unchanged.
Next year, the central bank is likely to reverse its 2009 policy easing trend of gradual headline rate cuts from as high as 2.25% at the start of the year.
"Now there's only one question whether to make one more cut followed in a relatively short period of time by tightening which would be actually carried out several times next year," Rezabek said.
Concerning the Dec. 16 policy meeting the bank will face a question whether it still needs to "fine-tune" its current monetary policy parameters or "the current trend" requires no change, Rezabek said.
If Rezabek decides to continue favoring a stable monetary policy later this month, his vote could tip the scale towards leaving the headline rate unchanged.