CZECH CENTRAL BANK GOVERNOR MICHL: FAILURE TO KEEP RATES COVID AND BALANCING BUDGET COULD RISK A SECOND WAVE OF INFLATION, WITH ANOTHER COST SHOCK POTENTIALLY ACTING AS TRIGGER
PRAGUE, Nov 18 (Reuters) -The Czech National Bank (CNB) is already discussing the right time to pause rate cuts as the bank's current outlook does not reflect that core inflation may need to be slightly under 2%, Governor Ales Michl said at a Nov. 14 conference in Mexico City, according to remarks published on Monday.
The central bank has cut its main interest rate CZCBIR=ECI to 4.00% from 7.00% since last December but has signalled a pause may be nearing.
Michl's comments added weight to the outlook.
"After a period of high inflation, we are now entering a phase of higher inflation volatility around central bank targets, with an upside risk," Michl said.
He noted that after falling to the bank's target of 2%, inflation has since grown back to 2.8% in October.
He reiterated his view that excessive money creation prior to the COVID-19 pandemic, creating inflationary pressures, required maintaining higher rates for a prolonged period and fiscal restriction.
"Failure to do so could risk a second wave of inflation, with another cost shock potentially acting as a trigger," he said.
"Looking ahead, core inflation may need to be slightly below 2%. Since this is not reflected in our current outlook, we are already discussing the appropriate time to pause rate cuts."
The bank's fresh quarterly economic forecast sees core inflation peaking at 2.5% in mid-2025 before easing toward 2.1% in 2026, with the main repo rate falling to 3.0% in mid-2025.
Reporting by Jan Lopatka
Editing by Jason Hovet
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