CNB Governor Zdenek Tuma said in the Budget Committee of the Parliament that the monetary policy was well set and corresponded to the development of the economy. According to Tuma, interest rates should not go down considerably again. Among the reasons for interest rate stability, Mr. Tuma mentioned satisfaction with the development of domestic demand. Monetary policy does not put a constraint on the growth of domestic demand, Tuma argued.
As to potential inflationary pressures, Mr. Tuma does not feel any of them acute. Inflation risks appear to be balanced. The most serious threat for the future (in two or three years) should be the development of public finance. Neither this factor, though, poses a threat for macroeconomic equilibrium in the short term.
Cooling of the economic growth in the U.S. and in the EU with a negative impact on the Czech GDP and current account balance was identified by Mr. Tuma as another potential threat for the Czech economy. Other possible sources of inflationary pressures, like oil price growth or domestic wage growth, should not have a strong negative impact on the Czech economy this year.
Mr. Tuma also commented on the exchange rate policy of the central bank. In his opinion, CNB should not use exchange rate interventions as a frequent instrument, but primarily to put a break on excessive fluctuations. Tuma does not expect extensive movements of koruna anytime soon and believes that Czech economy will not import inflation. A certain problem can be the opposite development, i.e. strengthening of the currency as a result of a massive FDI inflow in recent months. With respect to this development, central bank plans to organize a meeting with the Finance Ministry where efficiency of the special “privatization” account should be reviewed. The privatization account was established last year in order to mitigate negative impact of the privatization on koruna exchange rate.
Bonds made further losses following bad PPI figures released on Tuesday. The longest state 6.95/16 fell 45 basis points from late Tuesday to 105.50/80, yielding 6.36/33 %. The state 6.75/05 lost 5 points to 103.65/95, yielding 5.68/59 %.
The Czech crown was trading at 34.51/54 to the euro on Wednesday morning. In the evening, the currency weakened to 34.56/59 but remained stable if compared to Tuesday evening (34.55/59). CZK gained against USD during yesterday (37.88/91 in the evening vs. 37.92/96 in the morning) but lost if compared to late Tuesday (37.63/66). The currency did not react to the statements of CNB Governor, Zdenek Tuma, who expressed satisfaction with the current setting of the monetary policy and said that inflation risks were balanced.
(Martin Kupka)