August 25, 2019 / 8:01 PM / 4 months ago

Czech central banker sees stable rates through 2020 -paper

PRAGUE, Aug 25 (Reuters) - The Czech National Bank’s (CNB) Vice-Governor Tomas Nidetzky sees stable interest rates through 2020 as inflation pressures from the domestic economy are balanced by foreign markets slowing down, he said in an interview.

The Czech central bank kept its key two-week repo rate at 2.00% on Aug. 1 and signalled it would stay unchanged in coming quarters.

“I see rather a stability of interest rates in the next year. This was also in the minutes from the board’s August meeting,” Nidetzky said in an interview to be published by the business daily Hospodarske Noviny on Monday.

“To hike this year and then cut in the next - I say to myself, given how long is the monetary policy’s transmission - why do that? Monetary policy should perhaps be more stable.”

The bank has paused a two-year tightening cycle and, as it edged up its forecasts for economic growth, Governor Jiri Rusnok said after the August meeting that its next rate move could be either up or down, with both eventualities evenly balanced.

Unlike the central bank, markets, via forward rate agreements (FRAs), see chances of a rate cut this year and have fully priced in two within a year.

Nidetzky pointed out in the interview the crown’s exchange rate as another factor affecting monetary conditions.

The crown has been weaker than the central bank’s forecast in the third quarter.

“The crown will function rather as a stabiliser of rates and it will help easing monetary conditions,” he said.

“It looks like its exchange rate is more or less stable, in my opinion it has found certain equilibrium.”

Czech gross domestic product has maintained a solid pace of growth, 2.7% year on year in the second quarter. The export-reliant economy will eventually feel the impact of a slowdown abroad, Nidetzky said.

Its key market, Germany, is on the brink of a recession.

“There is a clear risk that we won’t escape this effect and it will have an impact on our economy sooner or later,” he said.

Reporting by Robert Muller; editing by David Evans

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