Oldřich Dědek – Převažují argumenty pro stabilitu sazeb

Interview of Oldřich Dědek, Bank Board member
By Robert Müller (Reuters 13. 12. 2022)

The Czech National Bank can hold off on interest rate rises as inflation is peaking, although any loosening of monetary policy is still way off, one of its policymakers Oldrich Dedek said on Tuesday.

The central bank launched one of Europe's sharpest rate hiking cycles last year, but Dedek was in a minority in support of steady rates during, arguing that inflation was driven by supply-side effects beyond the reach of monetary policy.

Since a summer board revamp at the Czech central bank, Dedek's view on rate stability has become the majority one.

And while the option of a hike is not completely off the table, rates have stayed on hold at the Czech central bank's last three policy meetings.

Most central bankers have signalled stability was preferred as the bank tries to steady a fast-slowing economy hit by inflation, which reached a three-decade high of 18% year-on-year in September before easing somewhat in recent months.

"When I look at (data), it is in line with the assumption that inflation may be peaking, because the main segments of core inflation showed a decline (in pace)," Dedek told Reuters.

"The decision (at the next policy meeting on Dec. 21) is about rate stability or a rise. I think that arguments in favour of keeping rates at current level prevail."

Dedek said maintaining rate stability at a meeting in February was also possible as long as inflation stayed in a downward trend.

Czech inflation eased to 15.1% in October but was higher last month at 16.2%, with state measures to ease the burden of soaring energy prices causing fluctuations. The central bank said November inflation would be 3.6 percentage points higher without the schemes.

The bank's key policy rate rose by 675 basis points, to 7.00%, between June 2021 and June 2022.

February will be Dedek's last meeting before his term ends.

The 69-year-old economist said it would still be premature to debate rate cuts. He said recession was certain, as projected by the central bank at the turn of the year, but the question was how deep it will go.

He also said debate about ending currency market interventions, which the bank has used to supplement policy since May in order to prevent a harsh weakening of the crown, could come when "robust" signs of easing inflation appeared.

"(In such a situation) the exchange rate will reflect that, and then the (intervention) commitment will evaporate on its own, which would be the best possible exit," Dedek said.

Recent market conditions meant the bank has not had to be active in the market, he added.

The crown traded around 24.290 per euro on Tuesday, stronger than the bank's assumption of 24.600 built into its inflation outlook, which sees inflation returning to single digits in the middle of 2023 before reaching the 2% target in 2024.