(Bloomberg) — Czech central bank Governor Ales Michl reaffirmed his message of caution in monetary easing as he seeks to avoid a fresh wave of inflation.
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While consumer price growth has stabilized near the 2% target, policymakers are wary of continued increases in costs of services and of budget deficits, Michl said in an interview with Seznamzpravy.cz published on Friday. The Czech National Bank must proceed “very cautiously” with further interest-rate cuts, and it may halt them if those inflation risks grow, he said.
As the economy continues a sluggish recovery from the pandemic shock, the central bank has slashed borrowing costs by cumulative 275 basis points since December to 4.25%. The board slowed the pace of easing to quarter-point cut at the past two meetings, with the last one held in Prague on Sept 25.
Michl declined to give a precise guidance for the rate path, saying future decisions would be based on incoming data and fresh forecasts. He added that the board was “leaving all options open.”
Fresh central bank projections due to be unveiled in November will probably show slower economic growth due to a weaker German economy that’s “flirting with recession,” according to the governor. Domestic services inflation should also ease, although central bankers “don’t want to underestimate anything,” he said.
“That’s why we aren’t lowering rates quickly to some neutral level,” said Michl. “Rather, we’re proceeding gradually, step by step.”
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