January 29, 2020 / 9:35 AM / 22 days ago

Czech central banker Nidetzky says no worries from `yesterday's' inflation

PRAGUE, Jan 28 (Reuters) - Czech central bank Vice-Governor Tomas Nidetzky prefers a smooth interest rate path ahead and is not concerned by inflation’s recent acceleration outside the central bank’s target band.

Nidetzky does not expect any “game changer” from a quarterly update to the central bank’s staff macroeconomic forecast, he told Reuters in an interview on Tuesday. The board will debate the forecast at its next monetary policy meeting, on Feb. 6.

Czech central bankers raised the main two-week repo rate to 2.0% last May. Since then, the majority of the board, always including Nidetzky, has supported rate stability. At each of the last three meetings, two board members voted to raise rates.

“For me, the most likely scenario at the meeting next Thursday is rate stability,” Nidetzky said. Stability is also likely the rest of this year, he said.

Although inflation accelerated to 3.2% in December, further departing from the central bank’s target — 2%, with a tolerance band of one percentage point either way — Nidetzky did not see it as a concern.

“Although (this year’s) inflation is ahead of us, from the point of view of a current monetary policy decision, it is yesterday’s story. There are some estimates that it will peak in March, April and then start returning to the target,” he said.

The central bank’s current forecast saw inflation peaking in the first quarter at 2.9%.

Even with a forecast for inflation to rise less than it has, the latest CNB forecast, in November, suggested two rate increases, one in the fourth quarter and one in the first quarter this year, followed by a cut in the second half 2020.

Some on the CNB board saw that as possible, given monetary policy should be flexible. Others have preferred smoother rate trajectory.

“Looking at the monetary policy transmission ... the smoothing system is closer to me,” Nidetzky said. “I doubt that a possible hike would affect the real economy.”

Board members Vojtech Benda and Tomas Holub voted for a rate increase at the December meeting.

Nidetzky said a stronger crown, which tightens monetary conditions in the export-reliant Czech economy, was a factor in favour of rate stability, depending on whether the gains were sustained.

“When I look at the overall picture, the crown has started to strengthen, I ask whether it is persistent,” he said.

The crown reached 25.048 to the euro last Tuesday, its highest since 2012. It has since slipped to 25.224, partly under pressure from the global concerns related to the threat of a coronavirus spreading from China. It is still stronger than the bank’s forecast of 25.500 on average in the first quarter. (Reporting by Robert Muller, editing by Larry King)

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