By Peter Laca (Bloomberg, 16. 11. 2009)
The Czech central bank doesn't need to lower interest rates for now as the economy is rebounding and inflation is set to quicken, board member Eva Zamrazilova said.
The Ceska Narodni Banka expects inflation to accelerate as economic growth returns next year and its prognosis is for interest rates to rise, Zamrazilova told Bloomberg News in a Nov. 13 interview in Prague. She was one four board members to outvote three others to keep rates steady at a record-low 1.25 percent at a Nov. 5 policy meeting.
"I didn't see a strong reason for lowering interest rates,'' Zamrazilova said. "Rates are already quite low, and at such a low level, I would need an even stronger reason for a further reduction.''
East Europe's export-driven economies depend on investment from the West and sank into recessions when the global credit crisis plunged the euro area into its worst contraction since World War II. Czech policy makers have been split at the last two policy meetings on whether to cut rates further to stimulate an economy that shrank an annual 4.1 percent in the third quarter, while growing a seasonally adjusted 0.8 percent from the previous three months.
In a quarterly update of its economic outlook on Nov. 5, the central bank forecast a 4.4 percent decline for the economy this year, which has seen the crisis curb demand for its cars and electronics, while rising unemployment curtailed consumer spending. The bank had previously expected gross domestic product to contract 3.8 percent.
The koruna posted its biggest intraday drop since Oct. 30, falling as much as 0.4 percent to 25.6 per euro. It was trading down 0.1 percent at 25.51 per euro as of 2.30 p.m. in Prague.
Upswing Seen
Still, the economy will expand more next year than previously forecast, with growth at 1.4 percent, the bank said. The rebound will bring price pressures with inflation accelerating to 2.4 percent in the fourth quarter of 2010.
Central banks in Norway, Australia and Israel have raised rates as their economies recover from the crisis, while the U.S. Federal Reserve and the Bank of Japan may wind down emergency measures taken to propel their countries out of recession.
Zamrazilova said that is was unnecessary to give the economy a further boost by cutting rates after recent GDP data "confirmed that the economic contraction has bottomed out'' and a "recovery is gradually getting under way.''
With interest rates seen rising in the bank's forecasts, "I didn't consider it ideal to add further fuel to the recovery, which we would then have to tame again by pouring water on the flames,'' she said, noting that she couldn't rule out that policy makers will again debate a possible easing of monetary conditions.
The bank board will meet on Dec. 16 for its last policy meeting of the year. It last changed rates on Aug. 6 when it lowered the two-week repurchase rate by a quarter-point to 1.25 percent. Since June 2008, it has decreased the rate by 2.50 percentage points.
"In general, I am more conservative about the use of monetary policy,'' she said. "I do not consider interest rates to be a toy, as something that can be casually moved back and forth.''