Gov Michl Welcomes Austerity Measures, Says Strong CZK Is "Alpha And Omega" Of His Approach

In addition to a blog post co-authored with his advisor and a keynote speech at a Prague university yesterday (summarised in our morning bullet), CNB Governor Ales Michl gave an interview to state broadcaster CT24, vowing that the central bank will continue to fight inflation until it returns to the target.

• Michl was optimistic about the results of the CNB's strategy, noting that the CNB expect inflation to be below +10% Y/Y within three months. He added that he "wouldn't change anything for now, not even in retrospect."
• On the FX front, the Governor said that the key thing is that the central bank managed to achieve the strongest exchange rate of the koruna in history. He added that having a strong currency is "the alpha and omega" of his philosophy.
• The official refused to comment on individual austerity measures proposed by the government, but he was glad that fiscal authority are taking action. Amid historically strict monetary conditions, Michl wants budgetary policy to be "similarly strict."
• Michl said that the key thing is for the government to reduce expenditures compared to previous budgets. "It is important that the government does not go through with the increase of indirect taxes," which could fuel inflation.
• The Governor said that the central bank will have a preliminary analysis of the fiscal consolidation package available within a few weeks, which will allow the Bank Board to better assess the need to adjust their monetary policy.
• The official said that he personally does not even think about lowering interest rates and will only be satisfied when inflation eases so that it "starts with a two." Until then, the CNB will stick to its strict approach.