“If we increase rates by 0.25 percentage points in June or August, it doesn’t have to mean any drama. If we start moving our monetary policy back to normal, we will not make a big mistake, “advises Vice Governor Marek Mora in a video interview, an excerpt of which can be found at the top of the article.
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And Mora is not alone in the seven members of the Bank Board, who is talking about raising the basic repo rate. Governor Jiří Rusnok and other members of the council have already announced that the time has come to increase the price of money borrowed from commercial banks by the CNB.
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“Signals are already quite clear that the time to return to normal is beginning,” Mora said. “When a substantial part of the population is vaccinated, according to the latest findings, it seems that even the first dose is enough, then I would start tightening. Whether it will be in June or August cannot be said now. “
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However, the Czech Republic is still lagging behind the European Union average in vaccination. 13 percent of the population received the complete vaccine, with over 3.7 million people receiving the first dose.
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We’ll cut the money lines soon
By setting interest rates, the bank influences the amount of money in circulation. To support the economy, the CNB cut rates three times during the first months of the pandemic. Back in February, the two-week repo rate, for which commercial banks borrow money from the central bank, was 2.25%. After a pandemic, the bank reduced it to the current 0.25 in just two months.
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Central bankers are also being pushed to raise rates by rising prices of virtually everything – food, energy, fuels, cigarettes… In April, year-on-year inflation was 3.1%. Higher than expected and out of tolerance of the CNB. However, according to Mora, the rise in price will end in a few months.
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“The current wave of inflation will be temporary. It will take several months. Big economies are starting to open up, China, the United States. There is a demand for various materials, chips that are used in cars, electronics. When there are no chips, they are not products and that pushes prices up. But they will be again, the pressure to increase prices will ease again, “predicts Mora.
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In the beginning, they push prices higher than healthy
Higher prices also appear on menus, hairdressers and wellness. According to Marek Mora, they will become more expensive because they are in high demand. “It is possible that in the beginning they will drive prices more than is healthy. Prices will skyrocket. But when the initial saturation disappears, it dims a bit. In the medium term, the CNB will be able to cope with this; the citizen does not have to be afraid that inflation will spiral out of control. “
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When the CNB raises rates, whether in June or August, it will not affect inflation right now. Nevertheless, he cannot ignore it, Mora warns: “By making current decisions, we are targeting inflation at the horizon of a year, a year and a half. But if we ignore the current inflation development, we could start spilling over into a permanent state, and we don’t want that. “
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While last year the CNB shot down rates three times in quick succession, they will go up gradually: “I can’t imagine that the first step will be greater than 0.25 and will probably be in June or August. Unless there is a black swan, “said Mora.
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