(Bloomberg) — Czech policy makers kept borrowing costs unchanged and reiterated their currency-intervention pledge that has boosted the koruna and helped fight the worst cost-of-living crisis in three decades.
(Bloomberg) — Czech policy makers kept borrowing costs unchanged and reiterated their currency-intervention pledge that has boosted the koruna and helped fight the worst cost-of-living crisis in three decades.
The central bank left the key interest rate at 7% for a fifth consecutive meeting on Thursday, as expected. The monetary authority also said it was ready to step into the market to prevent excessive exchange-rate swings, extending a regime introduced in May to stop a sharp depreciation.
Most board members, including Governor Ales Michl, have said the highest rates since 1999 are already curbing domestic price pressures, pointing to weaker household spending, a cooling property market and slowing loan growth. Still, they have warned that further tightening might be needed if salaries grow too fast and consumption jumps again.
“There are currently no strong arguments for the bank board to change their prevailing attitude in keeping rates unchanged at the current level for an extended period,” ING Groep NV analysts Vojtech Benda and Frantisek Taborsky wrote earlier in a report. “A rate-cut discussion will not start until mid-year.”
Michl will comment on the decision at 3:45 p.m. in Prague and present highlights of fresh staff forecasts. Previously, the central bank said inflation would peak at around 18% in January and then slow significantly in the following months.
Since the policy-making panel took a dovish turn following an overhaul last summer, the new management has preferred to smooth out the rate path instead of following staff projections that have implied further hikes.
With the central bank’s intervention regime attracting capital inflows by providing a backstop for the koruna, a strong exchange rate has eased the need to tighten policy now.
Read more:
- Czech Policy Maker Says Smoothing Out Rate Path Best Option Now
- Hot Labor Market ‘Mystery’ Prompts Czech Rate Hawk to Seek Hike
- Czech Central Banker Pushes Against Bets on Rate Cuts This Year
Most board members have repeatedly emphasized that borrowing costs will stay elevated for longer, saying that market bets on large rate cuts as early as the second quarter may be premature. Money-market prices show investors expect about 150 basis points of policy easing this year.
“We see the monetary-policy council preferring to leave domestic and now also external disinflationary forces to take effect before deciding on future action,” Morgan Stanley economists Georgi Deyanov and Filip Denchev said in a report before the meeting.
–With assistance from Peter Laca.
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