Act on CNB passed by Chamber of Deputies and forwarded to Senate
The Chamber of Deputies today passed an amendment to the Act on the CNB which extends the range of monetary policy operations executed by the central bank and grants it the power to set legally binding macroprudential limits in the area of mortgage loans.
The amendment broadens the CNB’s operational framework for executing open market operations, which are necessary for the effective conduct of macroprudential policy. At present, the CNB can only carry out operations with a limited number of tools and counterparties. The amendment removes these restrictions and enables the CNB to execute operations with other financial market instruments and all financial market participants.
The extension of the types of operations and the set of entities with which the CNB can execute these operations on the financial markets enables it to respond to monetary policy needs, especially in crisis situations, and is similar to the legislation in other countries, including the rules governing the activities of the European Central Bank.
“The amendment to the Act on the CNB brings our central bank instruments into line with the regulations in advanced countries, including the euro area,” said Governor Jiří Rusnok in response to the passing of the amendment. “I can assure the public that the CNB will always use these new powers in the areas of open market operations and mortgage regulation for the purpose of fulfilling its statutory mandate only, i.e. to ensure price and financial stability in the Czech Republic,” he added.
The prohibition of monetary financing pursuant to Article 34a of the Act on the CNB will continue to apply. This was not interfered with in any way by the legislators. Therefore, under no circumstances may the CNB lend to the government. This is also one of the conditions of the Czech Republic’s membership of the EU.
In this respect, the minor amendment to the Act on the CNB approved in March 2020 as a legislative emergency represents only a small section of the approved draft. Moreover, this minor amendment is only valid temporarily, i.e. until the end of 2021.
In addition to tools for more effective monetary policy conduct, the amendment sets forth macroprudential policy tools. It grants the CNB the power to set legally binding credit ratio limits for mortgage applicants, limits which have been specified up to now as recommendations only. Less stringent conditions will apply to mortgage applicants below the age of 36 years. The possibility to set mortgage loan limits and to require that they be met will enable the CNB to maintain a level playing field on the mortgage market for Czech and foreign providers of consumer credit secured by residential property, i.e. mortgages.
Similar authorisation to set legally binding credit ratio limits already applies in a number of EU countries, for example Slovakia and Austria, and the European Systemic Risk Board has issued a warning regarding its absence in Czech law. The specific level of a mortgage limit will always depend on the market situation in the given period and will be set in a provision of a general nature issued by the CNB.
The amendment to the Act on the CNB is now moving through the legislative process for debate in the Senate. The CNB has been striving since 2016 to have this amendment to the Act implemented. However, the previous Chamber of Deputies did not have time to approve the relevant amendment during its parliamentary term.
Markéta Fišerová
Director of the Communications Division and CNB Spokesperson