According to CNB Governor Jiří Rusnok, if the Czech National Bank did not raise interest rates, inflation in the Czech Republic would now be at least between 20 and 25 percent and the koruna’s exchange rate would be 30 crowns per euro. Rusnok said this at the CNB Discussion Forum at the University of Hradec Králové.
He noted that this was speculation on his part that he could afford as an “almost emeritus governor.” Year-on-year inflation rose to 14.2 percent in April and reached its highest level since December 1993. The koruna’s exchange rate is now below 25 crowns per euro.
According to Rusnok, there is no point in econometrically calculating where inflation and the exchange rate could be without rising interest rates. In support of his statement, he mentioned Estonia, which he said is a relatively stable eurozone country, has a zero interest rate, does not have to deal with the effect of the exchange rate and has an inflation rate of 19 percent.
According to him, the Czechia is now on the verge of a situation where households, companies and institutions will calculate an inflation surcharge. “It is very difficult to fight such inflation,” he said. He said that companies, wherever possible, have been projecting increased costs into their outputs without pardon, because they no longer believe that inflation will return quickly to the corridor of price stability. According to the governor, they are creating security in advance so that their financial situation does not deteriorate dramatically.
–
