Interview of Eva Zamrazilová, CNB Deputy Governor
By Krystof Chamonikolas and Peter Laca (Bloomberg 12. 3. 2024)
A senior Czech central banker sought to douse speculation over accelerated monetary easing, saying policymakers should cut interest rates at a steady pace to stem any return in inflation.
Vice Governor Eva Zamrazilova said she’s weighing a quarter- or half-point cut in the benchmark rate when the rate-setting panel meets on March 20, short of market expectations.
Lingering price pressures in services and a weak exchange rate are reason enough to stop short of a bigger move even after inflation slid more than expected last month to the 2% target for the first time since 2018.
“The pace of monetary easing that we have adopted is reasonable,” Zamrazilova said in an interview in Prague on Monday. “Both 25 and 50 basis-point steps are acceptable for me. I’m not considering any jumbo cuts.”
Ebbing inflation has prompted central banks in the region to begin a cycle of monetary easing, with policymakers in Prague joining regional peers in Hungary and Poland in cutting rates.
As the Czech Republic grapples with two years of economic stagnation, the Czech National Bank lowered the key rate by a quarter point in December, followed by a half-point cut in February to 6.25%.
The vice governor’s comments defied money-market pricing, which implies a reduction of more than 50 basis points next week, suggesting at least some investors are betting on a 75 basis-point cut.
Speculation intensified when a board member last month voted for a lowering on that scale — and the central bank published projections for the benchmark falling to about 2.6% by the end of the year.
But Zamrazilova, 62, said she expects “significantly” less monetary easing this year given persistent growth in the costs of services. Larger cuts would have negligible benefits for the economy this year — and could potentially have a negative impact on the exchange rate, she said.
“I am in favor of less activist and more conservative monetary policy in general,” the central banker said. “I don’t think our cautious approach could cause any big harm.”
Bets on aggressive policy easing have helped weaken the Czech currency by 6.5% to the euro over the past 12 months, more than the central bank forecast, making the koruna the worst performer in the European Union’s east.
While the depreciation has so far caused no major harm to the economy, Zamrazilova said she prefers a “relatively stable koruna.”
“Given that we have reached the inflation target, the weaker koruna isn’t giving me a headache because it is easing monetary conditions for exporters, the key segment of the economy,” she said. “Let’s hope that the koruna will get more stable now.”