Interview of Eva Zamrazilová, CNB Deputy Governor
By Robert Müller (Reuters 25. 4. 2023)
The Czech National Bank can start cutting interest rates in September if inflation keeps easing like expected by then, although policy loosening this year will not be as quick as markets see, Vice-Governor Eva Zamrazilova told Reuters.
The Czech bank, like others in central Europe, was among the first globally to jack up interest rates, starting in 2021, and is now among those expected to begin cutting rates first.
The bank's main interest rate has remained at 7.00% since mid-2022, following 675 basis points of hikes in a year-long tightening cycle.
Markets expect easing to begin within the next six months and price in around 100 basis points in cuts by the start of 2024.
Inflation slowed to a rate of 15.0% in March, and the central bank forecasts a return to single digits in the second half of this year. Zamrazilova and others on the seven-seat board have said they would consider rate cuts only once inflation returned to single-digits and clearly headed towards a target band of 1-3%.
"September will be richer with data, so if it goes in the right direction, and I will be certain enough that it will continue in the following months, then (a rate cut) is possible," Zamrazilova said in an interview on Monday.
The bank meets next on May 3, with analysts expecting it to keep rates steady.
Zamrazilova said she did not see rate cuts as deep as seen by markets this year as it would imply starting in August.
"Inflation would have to be really favourable, meaning coming down faster than we expect" she said. "I would be glad. Nobody wants interest rates unnecessarily high, but we can't make the mistake of starting to ease rates prematurely."
Zamrazilova said rates would stay above levels of the past decade. She also said the crown, which touched a 15-year high this month, was helping to tighten policy.
Even though major central banks, such as the European Central Bank were tightening policy, and narrowing the interest rate differential between Czech and euro zone markets, this did not warrant a rate hike now, she said.
"The (crown) channel is working optimally now," she said.
But Zamrazilova also saw inflationary risks stemming from fiscal policy and a tight labour market boasting the lowest unemployment in the European Union. The Czech central bank forecasts a pickup in nominal wage growth to 8.5% this year, almost even with average inflation and Zamrazilowa described current wage growth as "borderline".
"If there is still 200 billion crowns ($9.38 billion) more in the economy than there should be, that is an inflationary risk, same as some companies, especially large, export-oriented ones, increasing wages by 10% or more," she said.