Interview of Jan Frait, Bank Board member
By Jan Lopatka and Jason Hovet (Reuters 26. 7. 2022)
There are signs that call for caution in raising Czech interest rates further, although more tightening cannot be off the table at the first meeting of a revamped Czech National Bank board, new member Jan Frait said in his first media interview.
The Czech central bank has been one of the most aggressive in hiking interest rates in the past year, but its tightening cycle could be winding down or already over with a new board and governor who has pledged to keep rates steady on his watch.
Frait, speaking to Reuters and Bloomberg News in a joint interview on Monday, said he would consider either keeping rates steady or a small increase when the board meets on policy on Aug. 4.
He added that interest rates would not be falling any time soon, and that he expected monetary policy to remain tighter in the coming years than in the past decade.
"I certainly won't propose a rate cut, but I will consider (rate) stability (or) possibly some slight increase," he said.
"It will come down a lot to the discussion on the board and evaluation of these signals that are coming and which in recent weeks are more on the side that commands caution against further increases. But of course this situation can change."
"I am not ruling out, in any case, that rates will further rise, either now or sometime in the near future."
Frait said he expected inflation to peak in the autumn, possibly around 20%, after they hit a nearly three-decade high of 17.2% in June. Yet the bank could be surprised by more persistent inflation or a more resilient economy, he said.
He said consumer demand, though, had already been slowing and it was likely the Czech economy, as well as others, would slip into a recession or downturn.
Frait, who served on the bank's board between 2000 and 2006 and headed the financial stability department before his promotion, said the board acted decisively in its fight against inflation in the past year, creating a comfortable position.
The key two-week repo rate stands at 7.00%, after eight hikes totalling 675 basis points since June 2021.
Frait's comments echo those of another new member, Vice-Governor Eva Zamrazilova, who told financial daily Hospodarske Noviny last week that she was undecided, but that she preferred holding rates or a small hike.
The third new member, Karina Kubelkova, has not spoken publicly yet.
Frait said that while driving rates much higher may not be necessary, any easing that would follow should be measured too to prevent inflationary pressures from building up again.
"There will be a need for some longer-term, more-fundamental change of monetary policy with higher long-term interest rates than in the previous decade."
The tide is also turning in currency markets, where the crown has been under pressure now that major global central banks, including the U.S. Federal Reserve and the European Central Bank are lifting interest rates.
The Czech bank has been intervening to prevent crown weakening since May and Frait said he supported taking action in response to short-term shocks.
"I am not a big supporter of longer-term interventions, but in specific situations where there is a shock to the balance of payments, a certain presence on the market is normal," he said.
Frait said he was happy with current crown levels and that, as published data showed, the central bank did not need to be very active in recent days.