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CZECHIA: CNB's Zamrazilova Emphasises Inflation Risks, Calls For Caution

CZECHIA
EM BulletBulletEmerging Market NewsCentral and Eastern EuropeCzechia
  • CNB Deputy Governor Eva Zamrazilova said caution was warranted in deciding on whether to extend the current rate-cutting cycle as "inflationary tendencies have become entrenched in the economy", outweighing meagre economic growth. She said that the central bank's aim was to anchor inflation in the +/- 1pp tolerance band around the +2.0% Y/Y target "forever". Zamrazilova admitted that she would "love to do more to support small and medium-sized businesses by lowering rates more quickly, but my head doesn't allow me to do that," adding that it is better to cut borrowing costs more cautiously than overdoing it and being forced into hikes.
    • Bank Board members unanimously decided to reduce the two-week repo rate by 25bp to 3.75% last week but Governor Ales Michl described it as a "hawkish cut". For more details see our CNB review.
  • Prime Minister Petr Fiala said that there were no conditions for reinstating regular intergovernmental consultations with Slovakia and reiterated that relations with Prime Minister Robert Fico are "complicated." Fiala added that "if someone criticizes Brussels more often than Moscow, it is strange, to say the least."
  • The latest edition of the CNB's Financial Market Inflation Expectations report showed that "the opinion on inflation has changed very little at the one-year horizon, and closer convergence towards the 2% inflation target is expected at the three-year horizon", based on a poll of thirteen domestic and three foreign analysts. Furthermore, "the shift in the koruna exchange rate forecast largely reflects its depreciation on the foreign exchange market."
  • Czechia's unemployment rate edged higher to 4.3% in January, in line with expectations, form 4.1% registered in December.
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  • CNB Deputy Governor Eva Zamrazilova said caution was warranted in deciding on whether to extend the current rate-cutting cycle as "inflationary tendencies have become entrenched in the economy", outweighing meagre economic growth. She said that the central bank's aim was to anchor inflation in the +/- 1pp tolerance band around the +2.0% Y/Y target "forever". Zamrazilova admitted that she would "love to do more to support small and medium-sized businesses by lowering rates more quickly, but my head doesn't allow me to do that," adding that it is better to cut borrowing costs more cautiously than overdoing it and being forced into hikes.
    • Bank Board members unanimously decided to reduce the two-week repo rate by 25bp to 3.75% last week but Governor Ales Michl described it as a "hawkish cut". For more details see our CNB review.
  • Prime Minister Petr Fiala said that there were no conditions for reinstating regular intergovernmental consultations with Slovakia and reiterated that relations with Prime Minister Robert Fico are "complicated." Fiala added that "if someone criticizes Brussels more often than Moscow, it is strange, to say the least."
  • The latest edition of the CNB's Financial Market Inflation Expectations report showed that "the opinion on inflation has changed very little at the one-year horizon, and closer convergence towards the 2% inflation target is expected at the three-year horizon", based on a poll of thirteen domestic and three foreign analysts. Furthermore, "the shift in the koruna exchange rate forecast largely reflects its depreciation on the foreign exchange market."
  • Czechia's unemployment rate edged higher to 4.3% in January, in line with expectations, form 4.1% registered in December.