Ceska Narodni Banka : M. Mora – Next move likely to be up

Interview of the Deputy Governor Marek Mora
By Robert Müller (Reuters 22. 1. 2021)

The Czech central bank's next policy move is likely to be a rate hike even if inflation dips below target, but the bank needs more clarity about the impact of COVID-19 which may come with economic forecasts in May, a senior central banker told Reuters.

The central bank has held its key two-week repo rate at 0.25% since last May, after cutting it by 200 basis points last spring in the early days of the coronavirus pandemic.

The bank has said it does not see a need for further easing and would rather set its sights on normalising policy again, taking rates further from zero when conditions allow. This differs from the ECB, which said on Thursday it was ready for more support if needed.

The Czech bank said after its last policy meeting in December that it would act with caution to avoid acting prematurely.

'I am beginning to be in a position where I see it as slightly more likely that the next move will rather be a hike than a cut,' Vice-Governor Marek Mora told Reuters in an interview.

He said there was much uncertainty at the moment from the pandemic including over the success of the vaccination campaign, and more clarity was needed.

'When such clarity comes, I will not hesitate to raise the rates, and if we were to have inflation below our target at that moment, that would not hold me back too much,' he said.

The central bank is due to present the next quarterly updates to its macroeconomic outlook on Feb. 4, and the next one on May 6.

'I hope that with the May forecast, at the latest, things could be clearer,' Mora said.

In December, inflation dropped to a two-year low of 2.3%, deviating downward from the bank's forecast of 3.0%.

It was just above the centre-point of the central bank's target set at 2%. The bank's forecast sees inflation slightly above that level throughout 2021.

The central bank forecasts an economic rebound to a 1.7% growth this year, while the Finance Ministry sees an expansion by 3.1%. Mora said his view would be between those two levels.

The crown's exchange rate has been stronger than the central bank expected, dampening pressures on inflation, but that was not a source of concern for Mora in terms of monetary policy considerations.