Interview of Eva Zamrazilová, CNB Deputy Governor
By Jan Lopatka (Reuters 11. 12. 2024)
Inflation pressures warrant a pause in Czech central bank rate cuts this month but further easing may be up for future discussion if consumer prices data for January give positive signals, Vice-Governor Eva Zamrazilova said.
Zamrazilova was a lone voice calling for a pause in November when the majority on the seven-strong board voted for a 25 basis-point cut to 4.0%.
Since then more policymakers, including Governor Ales Michl, have signalled a break from a year of consecutive cuts from 7.0% was on the cards at the board's policy meeting on Dec. 19.
"I do not have many reasons to change anything fundamentally in this view, the balance of risks for meeting the inflation target seems to me very similar to what it was in early November," Zamrazilova said in an interview conducted on Tuesday.
November inflation at 2.8% year-on-year was slightly lower than expectations, but the structure remained a problem with services prices rising fast, she said.
"An unpleasant inertia persists in services prices," she said. "We will see how January repricing looks like, that will certainly be very important - regulated prices, inflation clauses and so on."
Services prices rose 5.2% year-on-year in November, far outpacing goods price growth of 1.4%.
Impact from stalling growth in main trade partner Germany, often seen as anti-inflationary factor, was working in both directions, as structural changes related to de-globalisation had some pro-inflationary impacts, Zamrazilova said.
"All in all, the development in Germany has only very modest anti-inflationary effect," she said.
An expected tick-up in Czech headline inflation in December to 3%, mostly due to base effects, could have a psychological effect on consumers and retailers, she said.
"I would like to see that this effect does not spill over into the beginning of the next year, and I would like to see inflation in January falling from the December peak."
The seven-member governing board will first meet next year on policy on Feb. 6, when the statistical office will release, for the first time, a flash estimate of inflation for January which will provide some guidance, Zamrazilova said.
"If inflation starts turning back from the December (uptick), for me... it will already be a factor to again start considering using the room for a further decline in interest rates."
Zamrazilova said she did not need to see inflation aiming below the 2%-midpoint of the bank's target range, but the key was to achieve sustainable price growth where the headline rate is not dependent on volatile factors such as food and fuel prices.
"I am concerned by the structure, if all prices were rising in a balanced way between 2 and 2.5%, I would not consider the situation as proinflationary as I do now."
The room for further decreases is limited, she said, with the neutral interest rate somewhere between 3% and 3.5%.
