Inflation data show that CNB interventions were correct --Singer


12.02.2014 17:05

Ostrava/Prague - The latest inflation data confirm the correctness of the Czech National Bank´s (CNB) decision to weaken the crown by means of forex interventions, the central bank´s governor Miroslav Singer said in Ostrava today at a conference that was broadcast live on CNB website.


Guvernér ČNB Miroslav Singer se zúčastnil konference Evropská ekonomika a její perspektivy, kterou pořádala 22. listopadu v Praze Vysoká škola finanční a správní. ČTK Doležal Michal

There is at the moment no need for changing the CNB´s strategy and the crown´s rate now corresponds to the 2 percent growth in consumer prices, that is the CNB´s inflation target, he remarked.

Singer does not expect a significant firming of the crown´s rate when the forex interventions end.

"The data are basically in harmony with our expectation. They show that without this autumn measure, the economy would now be heading very deep into the deflationary zone. They also show that no dramatic aggregate price growths are taking place, of course," Singer told CTK.

Czech annual inflation decelerated to 0.2 percent in January from 1.4 percent in December. This was the slowest growth since October 2009, the Czech Statistical Office (CSU) announced today.

CNB Bank Board members were aware, of course, that the figure would be near zero at the end of the year. "The month-on-month data fluctuate a lot so we can imagine that they may even touch upon zero or be below zero but the measure is already beginning to be reflected in other price categories," Singer said.

This means a very acceptable degree of certainty that the economy will not stay in the deflationary zone long enough for the arrival of negative phenomena that a longer stay in deflation is bringing, like a fall in wages, lower employment and lower state budget revenues.

These phenomena would require looking for savings in pensions and social allowances or trying to gain more revenues from taxes.

"At this moment, I have to say that since November, we have not seen any economic figure that would surprise us, maybe with the exception of the first GDP data which looked very bad. But they have later been revised upwards towards our expectations," Singer said.

"I have no reason to think anything else than what is in the forecast. It contains a weak growth because there is no reason for a bigger growth. The crown´s rate now corresponds to a 2 percent price growth. This should make the exit much smoother," Singer said on potential end of forex interventions.

He has not specified when the interventions could end. The CNB´s forecast says that the interventions could be finished at the beginning of next year.

The CNB governing board thus, according to its statement from last week, expects to be keeping its pledge to hold the crown´s rate near Kc27.0/EUR "at least till the beginning of 2015". The crown´s rate now moves around Kc27.50/EUR.

The CNB´s interventions have convinced the market that the central bank is serious about such monetary policy steps, Singer noted.

The CNB intervened only in the first several days after the launch of the interventions and the crown´s rate has stayed on the weaker side of Kc27.0/EUR since that time without the central bank having to intervene again.

The CNB had been talking about the possibility of forex interventions practically for the whole of last year and in the end took this step at the beginning of November.

The CNB made the crown some 7 percent weaker to the euro to avert the threat of deflation, that is a fall in consumer prices.

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