Czech central bankers must avoid easing monetary conditions any time soon because inflation remains “extremely high” and underlying price pressures are still elevated, according to Governor Ales Michl.
The Czech National Bank expects consumer price growth to slow to around its 2% target in the first half of next year from 8.5% in August, Michl said in an interview on the CNN Prima News channel on Sunday. Still, he added, core inflation is projected to remain at 3% or more, which for now doesn’t allow policymakers to start lowering the highest borrowing costs in two decades.
“Inflation is still extremely high, which is why we should all forget about cutting interest rates any time soon,” the governor said. “Don’t expect at all that we will cut in September, October or something like that. Just forget about rate cuts. We will keep restrictive monetary policy until we are certain that inflation will be around 2% not only in the first half of 2024 but also later.”
Michl’s comments appear to push against money-market bets on about 75 basis points of monetary easing this year, as well as against the central bank’s own forecast that assumes rapid rate cuts from the third quarter.
Read more: Czech Inflation Eases to 20-Month Low Before Rate-Cut Debate
Policymakers in Prague have been weighing slowing inflation and a stagnant economy against potential price pressures stemming from a tight labor market. While they expect to start discussions about the timing and pace of monetary easing as soon as this month, they have repeatedly expressed a preference for keeping the benchmark at 7% for longer.
Michl also said the government must implement planned budget-deficit cuts and companies need to slash their inflated profit margins to allow for policy easing.
“We will wait for more data — we will wait for November, for January, we’ll see, for next spring,” Michl said on CNN Prima News. “We will keep evaluating the data and see what it will allow us to do, but for now I don’t expect rate cuts.”
--With assistance from Peter Laca.