T. Holub – Nejistota může oddálit růst úrokových sazeb

Czech policy makers should hold off discussing interest-rate increases for at least six more months to see the full scale of the pandemic’s blow to the economy, a member of the central bank’s board said.

The bank, which cut rates more than anyone else in the European Union this year, is now one of few in the world flagging higher borrowing costs to keep a lid on inflation once growth resumes. But the policy tightening will probably come later than in the second quarter, which it outlined in its forecast, according to Tomas Holub.

“We don’t know what will happen tomorrow, and that translates into a huge degree of uncertainty for our monetary policy,” he said in an interview Monday.

After the country reopened shops and restaurants last week, the outlook for the recovery is still clouded. While the rebound from the spring Covid-19 wave was stronger than expected, the current outbreak could have a more lasting impact because many smaller companies have used up their financial buffers, Holub said.

Even with social-distancing rules still in place to prevent another virus surge, key export-oriented industries are running and inflation has held above the 2% target for almost two years.

The record budget stimulus is keeping households and businesses afloat.

Holub sees a risk that the country may tighten virus restrictions again and worries the main impact on jobs has yet to come. That’s because the usual labor market lag behind economic shifts is amplified by government support programs.

“When those expire and some smaller companies won’t come out of this alive, then we’ll see the full impact,” he said. The recent easing of lockdown restrictions boosted bets on Czech rate increases. But Holub said the stronger koruna has already helped tighten monetary conditions, delivering an equivalent to one or two quarter-point hikes. The board will next meet on Dec. 17 and is expected to keep the benchmark at 0.25%.

“The idea that, once all this blows over, we’ll have to start thinking about lifting interest rates from the current exceptionally low levels, is certainly right,” said Holub. “But I’m hesitant to advertise that this could start as soon as the middle of next year.”

Rate setters may start discussing hikes at around the middle of next year, according to the 46 year-old former central bank chief economist. For that to happen, several conditions will be needed: vaccinations are on track worldwide, the economy is growing and inflation is holding around 2%.

“That will logically be the time to start considering future policy normalization,” Holub said. “But at this moment I find such discussions premature, as one can imagine much worse scenarios.”