(Fixes typo in first paragraph, `eased’ instead of `eases’.)
PRAGUE, Oct 29 (Reuters) - The Czech central bank can maintain stable interest rates after inflation eased and as economic signs abroad worsen, board member Oldrich Dedek said, adding that a debate on cutting rates was still far away, even though central banks around the world are easing.
With inflation still above target, the Czech National Bank has debated whether to raise rates while the European Central Bank and U.S. Federal Reserve are loosening policy.
The board voted 5-2 at its last monetary policy meeting, on Sept. 25, to keep the main two-week repo rate at 2.00% . Dedek was part of the majority.
In an interview with Reuters on Tuesday, Dedek said he still leaned toward leaving rates unchanged.
“Since the last meeting, where I voted for stable rates, there has been no argument which would push for raising rates,” he said.
That includes inflation above the central bank’s target level of 2%, he said, but still within a 1 percentage point tolerance band, which he said should be utilised.
“As we face negative news from abroad, I am not a hawk in a sense that I would insist on returning to 2%. The complete width of the fluctuation band needs to be used,” he said.
In September, headline consumer price growth slowed to 2.7%, which Dedek called a “pleasant surprise”.
The central bank is balancing a solid domestic economy, low unemployment and rising wages with global trade worries and weakening economies among its trade partners, notably Germany.
Europe’s largest economy should grow in the final quarter after contracting earlier in the year, the Ifo economic institute said last Friday.
Dedek said it was still early to debate rate cuts.
“I think a debate on a potential rate cut is very far away in view of inflation being close to the upper end of the tolerance band,” he said. “In this, the Czech economy is dealing with the opposite problem of the euro zone.”
The situation abroad influences the crown’s exchange rate , one of the factors weighed by the central bank’s board. A stronger currency tightens monetary conditions; weakening loosens them.
In the past 90 days, the crown’s average exchange rate was 25.72 to the euro, weaker than a 25.40 forecast by the central bank’s staff outlook for the third quarter.
“It seems to me that there is no threat of a more pronounced weakening at the moment. However, that is one of the biggest uncertainties,” Dedek said.
He also rejected the idea of the bank using its reserves to influence the exchange rate.
“We certainly would not want to make the impression that with the exchange rate not strengthening, we would try to push the exchange rate by some active currency policy. That is definitely not where the debate stands,” Dedek said. (Reporting by Robert Muller)