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Czech Central Bank Boss Spars With Government Over Rate Hikes

Czech Central Bank Boss Spars With Government Over Rate Hikes

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The Czech central bank lashed out at government criticism of its rate rise, escalating a rare confrontation over the European Union’s most aggressive monetary-policy campaign to rein in inflation.

Rate setters in Prague on Thursday lifted borrowing costs by the most in 24 years, saying they must act to prevent price growth from getting out of control. Their decision sparked an angry reaction from the ruling party, with Finance Minister Alena Schillerova likening the move to policies only seen in developing countries.

Czech Central Bank Boss Spars With Government Over Rate Hikes

Central bank Governor Jiri Rusnok rebuffed the criticism on Sunday, saying the bank is only fulfilling its sole legal mandate of safeguarding price stability. He also slammed the government for large fiscal deficits even as pandemic risks to the economy have subsided.

“Those words are completely incompetent,” Rusnok said in a debate on the public TV, referring to Schillerova’s remarks. “I can guarantee you that rates will also rise in other countries that aren’t developing.”

Schillerova and Prime Minister Andrej Babis, who will face elections next week, have said monetary-policy tightening is not an appropriate reaction to inflation fueled by external factors, such as commodity costs and supply-chain bottlenecks.

The central bank says some of the inflation drivers may be transitory, but it sees risks that current elevated price growth will become entrenched in the economy for longer term. It wants to stop higher inflation from boosting wage demands, as the country has the lowest jobless rate in the EU.    

Rusnok also reiterated that the central bank will continue raising the benchmark rate, which currently stands at 1.5%, and that the debate will only focus on the size and the frequency of future hikes. 

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