Rusnok foresees gradual interest rate rises

While interest rates can be expected to rise in the Czech Republic in 2018, this will be part of a gradual and long-term process of development, the governor of the Czech National Bank, Jiří Rusnok, said at a gathering of leading Czech exporters on Tuesday.

Andrej Babiš, Jiří Rusnok, photo: CTKAndrej Babiš, Jiří Rusnok, photo: CTK Mr. Rusnok also told the assembled that Czech crown’s current exchange rate corresponded to the performance of the country’s economy, the Czech News Agency reported.

At the start of last month the CNB raised interest rates for the second time since it abandoned a policy of keeping the Czech currency weak against the euro, with the base interest rate on commercial loans growing by 0.25 percentage points to 0.5 percent.

The central bank chief said on Tuesday that its board could raise interest rates again at any future monetary policy meeting, if the situation so required. The next one is scheduled for December 21.

Mr. Rusnok also said that the CNB was the third institution of its kind after the US Fed and the Bank of Canada to raise interest rates, adding that the European Central Bank was continuing to adhere to a relaxed monetary policy.

He said the CNB would continue moving in its current direction in 2018 unless something extraordinary occurred, with a gradual return to higher interest rates to be expected.

Mr. Rusnok said he and the other members of the central bank’s board would take into account the crown’s exchange rate when making further decisions.

He also said that the Czech currency had gained by about 6 percent since the CNB ended its intervention policy, adding that he viewed the situation as positive to date, with no dramatic fluctuations.

The central bank governor said the Czech economy did not show any significant imbalances in key macroeconomic indicators. Only GDP growth, which is forecast to reach 4.5 percent this year, is above the potential of the economy, he said.

Speaking at the same exporters’ forum on Tuesday, a day before he was appointed prime minister, Andrej Babiš said the biggest problem currently facing the domestic economy was a labour shortage.

The ANO chief and billionaire businessman also said that the state should support economic growth via massive investments. He described this, along with reducing red tape, as the state’s main role.

As regards euro adoption, Mr. Babiš said it would bring more drawbacks than advantages. He said a bigger issue than adopting the common European currency was Czechs’ lack of education and the need to end tax incentives.

Unemployment in the Czech Republic fell to 3.6 percent in October from 3.8 percent the previous month.