Czech rate-setter says let's halt easing and take stock after summer

By Robert Müller (Reuters 16. 6. 2020)

The Czech economy still needs to plough through the worst of the coronavirus slump but the central bank has done enough via rapid rate cuts and now could keep policy on hold through the summer, the bank's Vice-Governor Marek Mora told Reuters.

His comments will douse speculation about another rate cut when the board meets on June 24, after Governor Jiri Rusnok and board member Vojtech Benda also called for time to assess the impact of past actions and how economic conditions develop.

"We were very fierce. I think that the speed and vigour gave us space to wait until the autumn at least, assuming that the development will be somehow normal," Mora said in an interview on Monday.

The central bank has slashed its main rate by 200 basis points in three moves since March. The two-week repo rate currently stands at 0.25%, providing room for just one more standard move before hitting zero.

Keeping monetary policy stable will also give the seven-member board time to think about what to do if more is needed, Mora said, predicting a tough debate.

He said the road to recovery would be "long and bumpy" and that the central bank's baseline scenario, which sees the export-reliant Czech economy shrinking by 8% this year due to the pandemic, appears correct.

Mora said he did not have any preferred option when it came to unconventional tools. The central bank has mentioned as possibilities exchange rate interventions, negative interest rates, quantitative easing or yield curve management, as well as more liquidity provision against bank assets including loans.

"The debate is ongoing ... I will not tell you that I would exclude anything, that I would not want something. I didn't set any order for myself," he said.

"I will try -- if we had to use some tool -- to contribute to some consensus, which probably won't be entirely easy at the board," Mora added.

Governor Rusnok said on Monday that cutting interest rates further might undermine the banking sector.

The bank used exchange rate interventions to ensure easy monetary conditions in 2013-2017, but the policy was controversial and inflated its foreign reserves by more than three times to 124.6 billion euros.

So far in the second quarter the average crown exchange rate to the euro has been roughly in line with the central bank's outlook, around 3% weaker from pre-coronavirus levels.