This year, the Czech National Bank will continue the easing of monetary policy, which it started in December with the first reduction in interest rates since May 2020, CNB Deputy Governor Eva Zamrazilová said on Sunday. The rate of reduction will depend on how quickly inflation, which interest rates are meant to tame, will subside.
“Inflation, I think, will die out very quickly. Exactly one year ago, for Seznam Zprávy, I said that inflation should start with a three this January. At the time, it was a rather controversial statement, but today we see that the fact that inflation will probably start at three in January is the majority opinion of economists,” said Zamrazilová in the Partie talk show on CNN Prima News.
At the same time, Zamrazilová confirmed that the December reduction of the main interest rate by a quarter of a percentage point to 6.75 percent was only the first step on the way to a looser monetary policy.
“That trend will continue depending on how inflation develops. Of course, if the descent to the two was slower than we think, it would mean a rather small reduction, 25 basis points. If inflation were to fall faster, it is sometimes possible to proceed with a more significant rate reduction,” said Zamrazilová.
According to Zamrazilová, the banks reacted to the CNB rate cut in December more significantly than could be expected, so she would expect them to correct their procedure.
“Savings interest rates are going down by 1.5, two to three percentage points, so the banks are acting as if we’ve moved the repo rate to somewhere around five percent, which we haven’t, and I hope that the reaction won’t be purely asymmetric and that it will follow that they will also make mortgages and loans for businesses cheaper,” said Zamrazilová.
About accepting the euro matter-of-factly
In the discussion, Vice-Governor Zamrazilová also touched on the subject of adopting the euro, which was brought into the public debate by President Petr Pavel in his New Year’s speech. After his words that we should start working on joining the eurozone, a carousel of comments started, to which Zamrazilová’s colleague, CNB Vice-Governor Jan Frait, also contributed.
In a comment for Seznam Zprávy on Saturday, he said that he considers the process of entering the eurozone “humiliating”. Deputy Prime Minister and Minister of Labor and Social Affairs Marian Jurečka, on the other hand, estimated on Sunday that the Czech Republic will already this year meet the so-called Maastricht criteria for adopting a single European currency.
According to Zamrazilová, we primarily need a rational debate.
“It is necessary to start some serious debate, without emotions, which will dispel certain myths on both sides, because on the one hand the population should not be promised all the good things the euro will bring, but neither should they be scared of all the bad things that could come with it, ” said Zamrazilová.
Her appeal was appreciated by the Chief Economist of the Czech Banking Association, Jakub Seidler.
“Representatives of the CNB have, with exceptions, been rather skeptical about the adoption of the euro in the past – however, the CNB does not decide on the adoption of the euro, although it will have an important advisory voice in the process,” said Seidler.
Commentary by Jan Frait
The current debate on the adoption of the euro is still somewhat superficial. At the same time, the move would have fundamental effects on the Czech Republic. A number of authorities in the supervision of the financial market would “move out of the country”, writes CNB Deputy Governor Jan Frait in a comment.
Zamrazilová drew attention to the fact that the process of adopting a single European currency includes a number of technical steps that need to be well planned and laid out in such a way as to cause as little burden as possible to the Czech economy. In the first place, it is the obligation to stay for some time in the so-called “hallway” of the eurozone, the system of exchange mechanisms ERM 2. According to Zamrazilová, it is advisable to shorten this period as much as possible.
“(The adoption of the euro) is a political decision with a number of serious economic consequences… The first would have to be the date of the adoption of the euro. And from that to roll back, according to the estimate of the legislative deadlines of the individual steps, the date of possible entry into the regime of exchange rate mechanisms (ERM 2), said Zamrazilová.
According to economist Jaromír Šindel from Citibank, the emphasis on the technical aspects of the adoption of the euro in the debate between the leading Czech representatives shows that this topic is rather imaginary on the domestic scene.
“On the one hand, it reveals how the topic of adopting the euro in the Czech Republic has been put on the back burner in the last decade. This may transform the other side into a fear of a too light-hearted approach to this issue,” said Šindel for Seznam Zprávy.
Šindel also pointed to examples that do not encourage joining the eurozone.
“The recent inflationary shock brought significant disappointment with the independent Czech monetary policy. However, the higher inflation did not only reflect the less strict monetary policy in the last five years, it would also be even more relaxed under the ECB. A relaxed fiscal policy also contributed to higher inflation in this period. And it would probably also be more relaxed under the single currency, as can be seen from Slovakia’s experience,” said Šindel.
2024-01-07 14:55:34
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