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Czech bank boasts "infinite" firepower

Monday, March 21, 2016 - 01:42

The Czech central bank has an 'infinite' balance sheet with which to prevent its currency overheating, according to its governor. But as Joel Flynn reports it could still be forced into reluctantly adopting negative interest rates.

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Amid Europe's economic woes, the Czech Republic might be considered a bright spot. Moving out of depression, growth - while slowing - is almost 4 percent But the central bank is fretting. Inflation remains stubbornly low, and there are worries its currency could be overheating. Pegged at 27 crowns to the euro since 2013, keeping it weak has cost the central bank billions. Governor Miroslav Singer says they might have to spend more. SOUNDBITE: Czech Central Bank Governor, Miroslav Singer, saying (English): "We have, in principle, infinite balance sheet. We generate money by clicking on a computer." Ever more extreme monetary measures are a common picture across the world. Negative interest rates a fixture of global central bank policy of late. The Czechs too now reportedly considering it - but wary of the risks. SOUNDBITE: Czech Central Bank Governor, Miroslav Singer, saying (English): "On one hand it would of course reduce the real interest, but on the other hand that would put more uncertainty in not only about the mechanism of how monetary transmission works if there's negative interest rates, but also uncertainty to those who we wish to invest." As the Swiss and Japanese central banks have followed the ECB into negative territory, some worry about the longer term implications. With more and more countries relying on loose policy as the norm, options are running out. SOUNDBITE: Charles Stanley Chief Economist, Jeremy Batstone-Carr, saying (English): "Macro data indicates that the economy just stutters, refuses to achieve lasting escape velocity, and that is causing many investors to wonder about the efficacy of monetary policy going forward." The cap on the Czech crown is expected to be lowered later this year. What central banks in Prague and elsewhere do beyond that though is becoming an ever more important question.

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Czech bank boasts "infinite" firepower

Monday, March 21, 2016 - 01:42