Czech central bank can avoid cuts, keep other tools locked away – vice governor

PRAGUE, July 22 (Reuters) – The Czech National Bank does not need to adjust its monetary policy at the moment as its previous disinflation concerns have abated, Vice Governor Tomas Nidetzky said.

The Czech central bank slashed its main interest rate by 200 basis points in three steps this spring to support the economy, which was hit by the new coronavirus pandemic and measures to curb it.

The bank’s two-week repo rate stands at 0.25%.

At the last monetary policy meeting, on June 24, the central bank paused its easing, and Governor Jiri Rusnok said it had done its work for now.

Nidetzky said that “stability too has its value”.

“We don’t have any need for monetary policy action,” he told Reuters in an interview.

As rates neared zero, the central bank’s seven-member board discussed other tools at its disposal, including currency interventions similar to those it pursued in 2013-2017.

“I think that the debate about ‘less often used’ tools will remain an intellectual exercise, an academic issue,” Nidetzky said.

One of the factors making further easing unnecessary is inflation, which has been at the upper end of the central bank’s 1%-3% target range, or even surpassing it, as in June when it accelerated to 3.3%.

“It is good news for us, regarding the disinflation concerns which we had and debated, that we have not seen them materialising so far,” Nidetzky said.

How much the economy has suffered from the pandemic remains to be seen as gross domestic product (GDP) data for the second quarter, when the economy seemed to all but grind to a halt, will be released on July 31.

In the first quarter, Czech GDP fell by 2.0% year-on-year.

The government has launched financial assistance and other programmes to help businesses and individuals cope with the crisis.

Nidetzky said he saw a risk in how the cabinet manages once the blanket measures expire.

“That’s the biggest challenge: whether the government will be able to distribute and divide up the support, because it won’t be possible to support everybody,” he said. (Reporting by Robert Muller; Editing by Hugh Lawson)

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