By Jana Mlčochová (Reuters 13.6.2013)
* Janacek: Easy policy for several quarters should aid recovery
* Says ready to weaken CZK but sees no need for now
* Crown level at 25.6-26.0 is 'satisfactory'
Czech monetary policy should remain expansionary for several quarters to facilitate the economy's rebound from the country's longest recession in modern history, a central banker said on Thursday.
Kamil Janacek told Reuters in an interview that the economy was over the worst of its recession and should rebound in the second half of 2013 as fixed capital investment catches up with rising consumption and exports.
"In my view, the first quarter was probably the last of the bad ones," Janacek said. "A revival should come as soon as this year. It will depend on when investment in fixed capital resumes."
Parts of the highly industrialised central European economy have begun to recover from a series of tax hikes and spending cuts, after the government said it was done with austerity.
But overall output shrank by 1.1 percent in the first three months of the year from last year's final quarter, hit by a slump in a volatile category of inventories, marking the deepest fall since 2009 and the sixth successive quarterly contraction.
Household consumption, however, a drag on growth in past quarters and part of the economy with the most direct impact on demand-driven price pressures, rose 1.6 percent - the fastest quarterly expansion in three years.
"A moderate drop in unemployment, stable low inflation and enough money on the financial market can finally somewhat lift consumer optimism," Janacek said, adding the end of tough fiscal retrenchment was also "an important signal" for consumers.
Investment will need to speed up for a recovery to fully set in, but companies will only resume investing when they see their order books filled for the next nine to 12 months - rather than three to six month now, Janacek said.
Janacek, seen by markets as belonging to the hawkish camp on the seven-member governing board, added that he expected this to happen by the end of the year.
LOOSE POLICY
To offset the dampening impact of strict fiscal policy on consumption and inflation, the central bank cut its key two-week repo rate to 0.05 percent in November, which it called a technical zero.
For its part, the government is now easing up on austerity.
On Thursday it agreed to raise the budget gap slightly next year to help the economy get out of recession.
The central bank said it would step into the foreign exchange market to weaken the crown if it saw the need to ease further.
Janacek repeated that pledge and said policy should remain loose for several quarters to ease the way out of recession.
"With the expansionary monetary policy, we are in my opinion trying to create conditions for growth to revive and restart faster," he said.
"If inflation behaves the way it has behaved so far, then I will not consider a change in this policy on the horizon of the
(next) several quarters."
Inflation slowed to 1.3 percent in May from 1.7 percent in April, below the bank's forecast of 1.6 percent. It remained within its preferred band of 1 percentage point either side of its 2 percent target.
The bank targets headline inflation on a 12-18 month horizon. Its forecast sees it below 2 percent for all of 2013 but within its preferred corridor.
"For the time being I do not see factors for which it would be necessary to immediately intervene," Janacek said.
"Anti-inflationary risks are moderately prevailing, but not to such a degree that it would make me act."
He also said a crown level in the range of 25.6-26.0 against the euro was "satisfactory". As of 0757 GMT the currency was flat on the day at 25.610 to the euro.