CNB's Rosnok rules out further easing for the meantime

By bne IntelliNews October 21, 2015

The Czech central bank does not need to further relax monetary conditions at the moment, rate setter Jiri Rusnok said in comments published on October 21.

Rusnok’s statement comes as the market is increasingly expecting the Czech National Bank (CNB) will embark on more easing. The current benchmark rate of 0.05% and cap on the koruna, while having helped the country to its fastest economic growth in eight years, have so far failed to spur price growth.

After cutting rates to near zero, the CNB introduced a lid on the koruna in November 2013. It's latest pledge is to prevent the currency from gaining above CZK27 per euro until at least the end of 2016.

Asked about the possibility of negative interest rates, Rusnok said that such a step would struggle to have a significant effect in an economy with a surplus of liquidity. “At present, we do not have a need to further deepen the easing of monetary policy”, Rusnok told E15 in an interview.

Rusnok, who is considered as the most likely candidate to take over the role of governor at the CNB next year, also said that for now it is not possible to say whether the koruna cap will need to be extended.

The continued weakness in Czech inflation is raising bets the CNB may keep the koruna cap beyond 2016. Though accelerating to 0.4%, consumer price inflation remains well below the CNB’s 2% target.

“In view of how inflation is lagging behind the central bank’s target and is set to do so for some time, a moment to announce the extension of the FX regime may be approaching”, analysts at KBC suggested recently. “The question is whether it could happen already in November”, they add. The CNB’s next policy meeting is scheduled of November 5.

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