Czech parliament grants stronger powers to central bank in mortgage, asset markets

PRAGUE, March 24 (Reuters) - The lower chamber of the Czech parliament on Wednesday approved stronger powers for the Czech National Bank in the mortgage market which enable it to set prudential limits for lenders, and extend its monetary policy authority for trading in securities.

The central bank has been monitoring the mortgage and housing market in recent years as a potential source of inflationary pressures caused by soaring property prices.

The bill allows the central bank to set binding limits for banks and other mortgage providers regarding loan-to-value (LTV), debt-to-income (DTI) and debt-servicing-to-income (DSTI).

Currently, the bank has been issuing recommendations widely adhered to by the lenders even when not set as a rule.

Low interest rates have supported demand for mortgages, as the central bank has kept its main two-week repo rate at 0.25% since last May, after it had slashed it by 200 basis points during the first coronavirus wave in spring.

Last year, new and refinanced mortgages rose by 39.6% year-on-year to 266 billion crowns ($11.97 billion), and data from this year have shown continued interest in borrowing.

The bill extends authorisation for the bank to use a wider array of market operations, enabling it to purchase more kinds of financial instruments from a larger pool of institutions, and in theory allowing quantitative easing and for more ways to stabilise asset markets.

The central bank had won the powers -- which it says are in line with rules in other European countries and the European Central Bank -- in an emergency move last year as the coronavirus crisis began but are set to expire at the end of 2021.

It has not used the powers in any significant way, as it has kept interest rates above zero.

The central bank welcomed the approval, which has however been opposed by the right-wing opposition Civic Democrats who called it “unnecessary and dangerous”.

The bill needs to be approved by the upper chamber, the Senate, and signed by the president to become a law. ($1 = 22.2240 Czech crowns) (Reporting by Robert Muller and Jan Lopatka; Editing by Alison Williams and Bernadette Baum)