V. Benda – Nevidím teď důvod pro změnu měnové politiky

By Kryštof Chamonicolas (Bloomberg 15. 6. 2020)

The Czech central bank has done its part to help mitigate the fallout of the coronavirus pandemic and, for now, it shouldn't do more, board member Vojtech Benda said.

With the government expanding its fiscal deficit of almost a 10th of output to support the economy, the bank's three interest-rate cuts since March -- at a cumulative 2 percentage points the steepest in the European Union -- are "adequate," Benda said in an interview on Friday.

As central banks around the world have expanded asset purchases or cut rates below zero, the Czechs have avoided using unconventional monetary easing. That's because inflation is still above target and there's no deflation risk for now. The government is also able to cheaply fund its stimulus and the financial industry has liquidity surplus, Benda said.

The country of 10.7 million has almost fully reopened for business after imposing some of Europe's earliest and strictest lockdown measures to containthe Covid-19 outbreak. The economic recovery will be slow, but the Czechs should benefit if the fiscal stimulus in neighboring Germany helps their biggest trading partner rebound, according to Benda.

"I don't see a reason to change policy settings in the coming months," he said. "Even now, during a steep economic contraction, we have well-anchored inflation expectations. That's super important because it means our monetary policy doesn't need to be that aggressive."

Before the country's lockdown, Benda was the most consistent proponent of monetary tightening when the central bank raised rates nine times from 2017 until February this year to curb resurgent inflation. He has since supported all of the subsequent cuts, including the 75 basis point reduction in May.

For its part, the government has raised this year's budget deficit target three times, to a record 500 billion koruna ($21 billion), covering salaries of furloughed workers, subsidizing commercial rent and sending money to towns and villages. But demand for state bonds has remained strong, allowing the central bank to focus on its traditional role of safeguarding price and financial stability.

"That's how it should be," Benda said. "The key to navigating the crisis in the short term is above all fiscal, not monetary policy. And I welcome all the government programs that are helping to protect jobs."

After the Czech currency initially plunged more than its regional peers, the koruna pared some of the losses and is now stronger than the central bank had forecast. That reflects an improving economic outlook and isn't creating pressure on the central bank to counter the appreciation by further relaxing policy, Benda said.

He said extraordinary steps should only come if a significant deterioration in global economy created deflationary risks.

But no such problems exist now, and the most recent data, which showed a 2% economic contraction in the first quarter and May inflation slowing to 2.9%, were broadly in line with the central bank's baseline forecast.

"The reality may even be slightly better than we thought," Benda said. "I currently don't see a reason why we should use some kind of unconventional tool."