Interview of Vojtěch Benda, Bank Board member
By Krystof Chamonikolas (Bloomberg 22. 10. 2020)
The Czech government’s decision to reimpose a partial economic shutdown to fight Europe’s worst coronavirus outbreak doesn’t require the central bank to loosen monetary policy further, according to board member Vojtech Benda. The cabinet’s decision to close schools, most shops and services will probably cause the economy to shrink in the fourth quarter, Benda said in an interview on Thursday.
But inflation remains robust and a weak exchange rate continues to help exporters. And as long as factories can stay open and can sell goods abroad, the longer-term impact should be limited and allow central bankers to stay put on rates, he said.
“I find the current monetary conditions sufficient to mitigate the disinflationary pressures, and we don’t need to ease policy further,” Benda said. “Wait-and-see is a better strategy for November, not least because the overall uncertainty is huge.”
The country has been grappling with the biggest spike in new cases per capita of Covid-19 in Europe. That’s forced the government to impose similar social-distancing measures as in a spring lockdown.
The impact on jobs and consumption has been limited so far by record budget stimulus that includes subsidized salaries for furloughed workers and benefits for parents staying at home to care for children.
The bank will next debate interest rates on Nov. 5 and will present its new forecasts. The August projections assumed rising rates in the second half of next year, and this scenario remains valid for Benda, depending on the pace of the recovery, its structure and on the koruna.
“We assume that this pandemic will last for a limited period of time, after which the economy could return to growth next year and we’ll again start debating a normalization of the monetary policy from roughly mid-2021,” he said.
Inflation is stuck above the 1%-3% tolerance range as policy makers cut the key interest rate by a cumulative 2 percentage points between March and May. The new shutdown is likely to curb price growth, but the elevated readings from the past months mean there’s no need to react, according to Benda. He said he couldn’t rule out that another board member will propose cutting the benchmark to what the central bank calls a technical zero of 0.05%, from 0.25% now. This is a possibility at any monetary-policy meeting, he said.
“But my position is that further easing is not needed at the moment or in the coming weeks because the risks are balanced, including the possibility that inflation will be returning to the target more slowly,” Benda said.