ČNB governor says rate outlook unclear

The Czech economy’s signals are clouding the interest-rate outlook, central bank governor Miroslav Singer tells Bloomberg

Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act | na serveru Lidovky.cz | aktuální zprávy Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act | foto: © ČNBČeská pozice
Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act

The Czech economy’s signals are increasing “uncertainty” and clouding the outlook for interest rates, Czech National Bank (ČNB) Governor Miroslav Singer told the news agency Bloomberg in an exclusive interview published Monday.

Demand pressures are weaker than the central bank forecast and offsetting upward inflation risks caused by higher commodity costs coming mainly from abroad, Singer said in an interview in Washington, D.C., on April 16.

“One thing is happening for sure: the uncertainty is increasing,” he said. “Whether the path of appropriate policy is moving in a stricter direction of higher rates or tighter monetary policy […] is much less clear to me,” he said. ‘One thing is happening for sure: the uncertainty is increasing.’

The ČNB has kept the benchmark two-week rate at record-low 0.75 percent since May 2010 as inflation holds below its target and the economic recovery slowed, Bloomberg said. This contrasts with the European Central Bank (ECB), which raised its main rate to 1.25 percent in April to stem price growth.

Czech inflation slowed to 1.7 percent in March from 1.8 percent in February, below the central bank’s 2 percent target for a third month. There are differing views among Czech policy makers on inflation risks, with some board members advocating higher interest rates. Singer was one of five policy makers who voted to keep rates stable at the last monetary session on March 24. Singer was one of five policy makers who voted to keep rates stable at the last monetary session on March 24.

“[I] feel our future forecast may stress a little bit more inflationary risk than the previous one, mainly because of commodity prices,” Singer said, noting that external developments, including the sovereign debt crisis in the euro area and higher commodity costs, are making it more difficult to predict future developments in the Czech economy.

Only one ČNB board member wanted a quarter-point increase at the last meeting while another who missed the meeting has said he wants to lift rates at the next session on May 5, when the bank board will also discuss an update of its inflation outlook, the news agency said.

“We are getting signals that are going against each other,” Singer told Bloomberg. “We are getting a bit lower wage growth; we are getting very little of domestic demand pressures. On the other hand, we are getting stronger inflationary impulses from [the] external world, so how these things will add up is very uncertain.”