Interview of the Deputy Governor Tomáš Nidetzký
By Jason Hovet (Reuters 25. 7. 2019)
Czech interest rates should remain stable for now as the central bank weighs uncertainties abroad against a domestic economy still in good shape, central bank Vice-Governor Tomas Nidetzky said in an interview.
The Czech National Bank has paused a two-year tightening cycle that raised rates eight times, the last move coming in May bringing the two-week repo rate CZCBIR=ECI to 2.00%. It has said its pause could reach into mid- 2020.
The bank is balancing a home economy where unemployment is low and wages are rising, which is supporting domestic demand and inflation, with an external situation that includes weakness in the euro zone, global trade tensions and the uncertainty surrounding Britain's efforts to quit the European Union.
Both the European Central Bank and the U.S. Federal Reserve have already signalled looser policy ahead.
Nidetzky told Reuters Czech rate stability was likely and that loosening by the ECB or Fed would not automatically mean the Czech bank would have to follow suit.
"For me personally, I would rather expect stability of interest rates, as our May outlook predicts," he said in an interview on Wednesday. "Based on today's outlook and current information available, I think that stability ... is the most likely scenario."
The seven-member central bank board is due to debate new forecasts by its staff at its meeting on Aug. 1, and Nidetzky said he did not expect any dramatic changes from May's outlook, which foresaw growth this year of 2.5% and next year of 2.8%.
He said he thought wage growth would be higher next year than what is seen in the latest outlook, which forecasts a nominal increase of 5% in 2020.
Nidetzky said developments in the euro zone looked like the start of a cyclical slowdown but nothing dramatic.
After a five-year period of near-zero interest rates before 2017, the Czechs were among the most hawkish central banks in Europe before this recent shift.
Nidetzky said he did not expect rate differentials would strengthen the crown too much.
He said some "window of opportunity" could still present itself in the future for the bank to continue normalising rates.
"If monetary conditions were not tightened by the FX rate, that could open room for us to continue in monetary-policy normalisation," he said. "But there are many other factors in play."
The crown has mostly gained less than the central bank built into its outlook and that was a factor in 2018 when the bank delivered a series of rate increases.
Uncertainties abroad now meant crown weakness compared with the outlook did not have to automatically lead to higher interest rates, Nidetzky said.
He said he still expected the crown to appreciate but the path will not be as "ambitious" as previous outlooks.
The crown traded at around 25.520 to the euro on Wednesday.
The bank's May outlook assumes an average exchange rate of 25.2 in the third quarter and 24.9 in the fourth quarter. A Reuters poll of analysts this month forecast crown stagnation around 25.50 the rest of the year.