Interview of Jan Procházka, Bank Board Member
By Krystof Chamonikolas and Deana Kjuka (Bloomberg 25. 7. 2023)
The Czech central bank will probably dash investors’ expectations for rapid monetary easing starting this fall, one of the board’s newest members said. The koruna gained.
A persistently tight domestic labor market, combined with expected further tightening in the US and the euro area, mean the Czech National Bank will probably keep the benchmark rate at 7% for longer, Jan Prochazka said. Money-market prices imply about 125 basis points of cuts this year, starting in September.
“Those market expectations are too optimistic,” he said in an interview on Tuesday. “I personally can’t imagine that we will reach consensus to start cutting rates this year, unless some new and significant risks for the economy emerge.”
The koruna gained as much as 0.5% to the euro and money-market rates jumped following his comments.
Consumer price growth slowed in June more than the central bank expected, and the monetary authority forecasts it will reach its 2% goal by mid-2024. But several policymakers have warned about rapid wage growth, fueled by a shortage of workers, saying that inflation might prove to be more resilient after running above the target for over four years.
The risk that the central bank might fail to bring inflation down to its goal is “much more troubling” for rate setters and the economy than the possibility of price growth slowing to less than the 2% goal, Prochazka said.
The 44-year old economist joined the central bank in February after serving as the head of EGAP, the state-owned provider of credit insurance for Czech exporters and businesses investing abroad. Last month, he voted with the majority of the board to hold rates, after unsuccessfully seeking a rate increase in May.
The next policy meeting is on Aug. 3, when the seven-member panel will also review fresh staff forecasts.
“Most board members, I believe, will be looking for a really high degree of certainty that the target will be reached in time before they are ready to start with monetary easing,” he said. “Next week we will be deciding between a rate increase and stability. A hike is not a very likely scenario, but I can’t entirely rule that out.”
Read the second part of the interview.