Interview of Tomáš Holub, Bank Board member
By Jason Hovet (Reuters 22. 4. 2024)
The Czech National Bank has no need to accelerate its rate-cutting pace amid signs of a strengthening economy and expectations of delayed and more gradual easing by major central banks, policymaker Tomas Holub said on Monday.
Czech policymakers have cut interest rates by 50 basis points at each of their past two meetings, taking the key two-week repo rate to 5.75%, down 125 bps since December when an easing cycle began.
Holub had supported a sharper 75-basis-point rate cut at the last meeting in March after inflation returned to the bank's 2% target sooner than expected, creating space for a larger move.
But, since then, signs of a stronger rebound in household consumption and the economy overall, along with the prospect of slower cuts to U.S. and euro zone rates, argue for sticking with a gradual approach to easing when the bank meets again on May 2, he said.
"There is no new argument to accelerate the pace. The new (arguments) are rather for a more cautious approach, so I think keeping the pace is a good compromise for me," Holub said in an interview.
"I think it would be harder to communicate a larger rate cut than 50 basis points now than it would have been in March."
Central Europe's rate setters, after battling double-digit inflation, have moved sooner than global peers like the U.S. Federal Reserve or European Central Bank to begin loosening policy.
The ECB has signalled it will cut rates in June but it is less clear what will come after that. Analysts in a Reuters poll last week forecast the Fed will wait until September to begin cutting.
Shifting Fed expectations have boosted the U.S. dollar, and in turn weighed on the crown, which is more than 2% weaker than the central bank assumed in its last outlook in February.
"We need to take on board that the crown may remain a bit weaker than previously expected for a few months or quarters," said Holub.
The economy is also showing signs of growing faster this year than the 0.6% pencilled into the bank's last outlook. After a contraction amid high inflation last year, Holub expects growth to be revised higher in a new outlook to be released at the May meeting.
"In particular, we have signs of recovery in household consumption," he said. "We see real income growth has resumed. It was always likely that real wages would start growing by now but the pace seems to be a bit faster."
Holub said he expected inflation would run in the upper half of the bank's 1-percentage-point tolerance band around the 2% target in 2024. Inflation sat at 2% in February and March.
He said stronger wage growth would likely contribute to elevated services sector inflation, which has been part of the bank's policy debate. That growth has been offset by subdued food prices, and Holub said the hope was pressure in services would gradually decelerate.
Eventually, too, the bank will need to slow its easing pace, Holub said, and deeper debate on that might come after a further update to staff forecasts in August.
Market pricing - implying interest rates falling to around 4% over the next year - was within range, he said.
"I would not want to send a signal that I see market pricing as incorrect," Holub said.