Board Member Eva Zamrazilova speaks in an interview with Dow Jones Newswires
Leoš Rousek (Dow Jones Newswires, 14. 3. 2011)
The Czech National Bank needs to tighten monetary policy swiftly because rising inflationary pressure is the main danger to the Czech and global economic recovery, said Eva Zamrazilova, the most outspoken hawk on the Czech central bank’s seven-person rate-setting policy board.
“I consider inflation to be one of the most serious threats to a global recovery nowadays,” Zamrazilova said in an interview with Dow Jones Newswires Monday. She added that inflationary pressures, evidenced by rising exports and producer prices, are mounting and warrant the raising of the current headline interest rate of 0.75%. Unchanged since May, the current rate represents the loosest monetary policy on record for the Czech Republic.
Inflationary pressures, coupled with secondary impacts of rising commodity prices, are the real growth hindrance, she said.
With Czech producer prices rising 4.6% on the year in February and exports increasing 28% in January, the central bank should show the same sort of foresight it displayed at the start of 2009 before the downturn hit the export-led Czech economy.
“I feel a strong need for symmetry,” said Zamrazilova, who has voted repeatedly since last September to tighten interest rates.
“I think that the central bank [which] acted preemptively in those days should act preemptively today as well,” she said, referring to a series of cuts between February 2009 and May 2010 that brought the headline rate down from 1.75%.
The Czech central bank is scheduled to hold its next rate-setting meeting March 24, following a close vote at the February meeting at which four members voted to leave rates unchanged and three, including Zamrazilova, called for a 25-basis-point tightening.
Czech manufacturers, metal makers and electronics producers have enjoyed steady demand from their main trading partners in Germany, Poland and Slovakia, which together account for more than 50% of the country’s exports, she said.
“My attitude [on interest rates] hasn’t changed since the last meeting and I really see no time to wait,” Zamrazilova said.
“Moreover I feel that Czech exports are jumping on the bandwagon of the German [export] locomotive which is heading to Asia.”
Zamrazilova said she remains confident about Asian demand staying strong, but lurking inflation is the dark side of this otherwise rosy expansion picture.
“The growth is accompanied by some threatening inflationary pressures and those are tied not only to food prices [but also] second-round effects of energy prices, metal prices,” she said.
Also, the Czech economic recovery is unlikely to see any major impact from plans to increase value-added taxes on some consumer goods and services to 17.5% as of 2013 from 10% at present.
“As for the tax changes their impact may be quite neutral in the longer-term horizon because any eventual changes will have evaporated from inflation figures within a one-year horizon,” Zamrazilova said, adding that the issue has no relevance at present.
On Czech plans to adopt the euro, for which there currently isn’t an official target, Zamrazilova said she sees a need to close the gap between Czech and German gross domestic product before the Czech Republic can seek to join the common currency.
As a European Union member since May 2004, the Czech Republic is required to maintain prudent fiscal and debt policies so that it is fit to adopt the euro at some point. But no firm deadline for euro-zone accession is set.
“The real convergence of the Czech economy should proceed further beyond the GDP at around 70% of Germany and Austria but to some 80% or 90%,” Zamrazilova said, adding that in general for “optimally functioning currency union, GDP levels shouldn’t be probably very different.”
Czech GDP, measured on the basis of parity of purchasing power to adjust for differences in exchange-rate effects, is currently at $24,987 per capita, or at nearly 70% of the per capita German GDP of $35,930, according to data released by the International Monetary Fund.