By Robert Muller and Jason Hovet (Reuters 1. 6. 2016)
A bustling Czech economy is setting the central bank on course to end its cap on the crown currency as planned in 2017, board member and incoming governor Jiri Rusnok said on Wednesday.
The central bank has said the likely end of its weak crown policy would come around the middle of next year and Rusnok said it was still 50-50 whether an exit could come sooner or even later than expected.
In an interview, he said he saw no obstacles from the economy, which was among the fastest-growing in the European Union last year but is set to cool somewhat in 2016 before gaining speed again.
"The economy, it seems, will be closer next year to the state where it should be able to better absorb a mild tigthening of monetary conditions than it is today," Rusnok told the Reuters Eastern Europe Investment Summit.
"It is in motion, while not at a tiger's pace. There is robust growth, in European circumstances."
The economy expanded 4.3 percent last year thanks to growing demand at home and abroad along with a record influx of EU development funds. Growth should ease to 2.3 percent this year before picking up again to 3.4 percent in 2017.
Rusnok, who joined the central bank in 2014 and is set to lead the board from July, said the economy could well be at its potential or even slightly above at that point.
Following two recessions after the global financial crisis, the central bank cut interest rates to "technical zero" in 2012 and then launched inverventions to weaken the crown in 2013. It has kept the crown on the weak side of 27 to the euro since.
The bank has intervened regularly since last July but less so in recent months.
An cap exit could come in one move or gradually, and must be as predictable as possible, Rusnok said.
He reiterated he would prefer inflation to "robustly reach" the central bank's 2 percent target, or even slightly overshoot it, before the bank dropped the policy.
Inflation was 0.6 percent in April.
He said developments abroad, especially in main euro trading partners, did not show any dramatic changes, although the bank still had to take them into account.
"We see the risks rather as anti-inflationary than the opposite, and that has not changed since our last inflation report (in May)," he said.
The bank has also discussed the use of negative interest rates as a way to defend the crown cap if needed.
Rusnok said he saw no other reasons why the bank would consider their use. "We do not need to stimulate loan growth. Our loan growth is solid. Czech banks do not have problems with resources," he said.