Jan Kubicek, a new board member of the Czech National Bank, has said that the bank’s current interest rate setting is enough to bring inflation down this year if wages do not accelerate or if the crown does not weaken unexpectedly. In his first interview since joining the board last month, Kubicek said he favoured the bank’s approach of keeping rates higher for longer, rather than further tightening policy. The bank has faced criticism from some economists for not lifting rates higher to counter inflation, which is currently running at 17.5%, around a three-decade high.
Kubicek said the policy debate was over whether the bank should raise rates further and then cut them while the European Central Bank might still be in tightening mode, or whether to keep the current rates for longer. “The second approach is closer to me personally,” he said. He estimated that inflation would drop to 6-8% by December. However, he also said that some shock that would require raising rates could not be ruled out.
The Czech central bankers have been criticized for their approach to inflation, which has hammered people’s paychecks and pushed the Czech economy into recession at the end of last year. Kubicek said the crown, trading at almost 15-year highs in the past month, was a good supplementary tool for policy. The bank has pledged to prevent sharp swings in the crown exchange rate through currency market interventions since last May, but it has not had to sell foreign currency in recent months, according to its data.
Kubicek added that an overheated labour market was a big question which could factor into wage demands. Another question mark was the government’s fiscal policy. “If debt were to grow at the current pace, we would be forced to keep higher rates for longer,” he said. The International Monetary Fund, as well as the bank’s own macro outlook and a minority on the board, have also said more tightening would help tame price growth faster. However, Kubicek disagreed with his colleagues’ views that monetary policy needs to tighten to rein in inflationary expectations.
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