Interview of Jan Frait, CNB Deputy Governor
By Jan Lopatka (Reuters 31. 1. 2024)
A senior Czech central banker is prepared to back at least a 50-basis-point cut at the bank board's policy meeting next week and may favour an even larger move, opening the possibility the bank may discuss bolder monetary easing than market predictions.
Deputy Governor Jan Frait told Reuters in an interview that January annual price mark-ups for goods and services did not bring any shocks and the outlook for economic growth, household demand and inflation pressures, was softening.
The market has expected a debate on Feb. 8 for either a 25- or 50-basis-point reduction in the main interest rate, which the bank first cut by 25 basis points to 6.75% in December.
"I have always favoured the approach that, when we already see that rates should move to a different, lower level, to take some bolder, stronger action and get to some level that will require fine-tuning," Frait said in the interview on Tuesday.
"And I believe that just in the situation that we are in, I can personally imagine more pronounced steps at the beginning and then to discuss fine-tuning."
Asked if that meant he was ready to back a 50-basis-point cut next week, Frait said: "At least by 50. Certainly more than 25."
"Fifty may already be labelled as a bolder action, but depending on the (new macroeconomic) forecast, I can imagine even more forceful action," he said.
"I think there is a lot of psychology involved and now it is clear that once the first step is made, certain psychological barriers loosen up and the debate can now be more pragmatic and more relaxed," he said.
Frait said he expected a softer economic and thus also rate outlook in the quarterly update. The November outlook forecast the economy growing 1.2%, and inflation below 3% this year and falling below 2% at start of 2025.
The board has held the view that it will keep policy somewhat tighter than suggested by the forecast. This approach would likely remain to deliver the "last mile" of disinflation, Frait said.
Financial markets have been pricing in Czech cuts to just under 4% at the end of the year, Frait said.
"It does not seem unrealistic in any way."