Czech Central Bankers Focused on Risks of Longer Virus Lockdowns

Czech central bankers discussed the risks and potential implications of a longer-lasting pandemic than assumed in the bank’s fresh forecast, according to minutes from the Feb. 4 policy meeting published on Friday.

While most board members regarded the alternative scenario of a protracted coronavirus-induced downturn as “quite pessimistic,” they called for caution in raising interest rates. Vojtech Benda and Tomas Holub said there was a real chance hikes could start this year, but warned against acting too soon after recent koruna gains and an increase in market rates had delivered some of the projected monetary tightening.

Click here to read more about last week’s Czech National Bank meeting

“The bank board assessed the uncertainties and risks of the new forecast as being substantial and tilted to a longer-lasting pandemic than assumed by the baseline scenario,” the minutes said. “This could lead to a lengthier cyclical downturn of the Czech economy and hence to a need to keep monetary conditions accommodative for longer.”

More comments from the minutes:

  • The next monetary-policy action would most likely be a rate hike.
  • Governor Jiri Rusnok said that even the longer-lasting downturn scenario probably would not have such strong anti-inflationary consequences. He saw inflation expectations as “robust and well anchored” to the 2% inflation target.
  • Deputy Governor Tomas Nidetzky and board member Oldrich Dedek expressed concerns that the monetary tightening stemming from stronger koruna and higher money-market rates may be happening prematurely.

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