Czech Policy Maker Rezabek Says Rates ‘Extremely Low’

Czech central banker Pavel Rezabek said he thinks the country’s interest rates are “extremely low” and he’d be “calmer” if borrowing costs were higher.

The Ceska Narodni Banka left the benchmark two-week repurchase rate at a record-low 0.75 percent on Nov. 4 and signaled borrowing costs may start increasing near the end of next year as inflation hovers around the central bank’s target of 2 percent. Rezabek was among the five board members to vote for rates to stay on hold. One member, Eva Zamrazilova, wanted a quarter-point increase.

“Interest rates are extremely low and I would be calmer if they were on a slightly higher level,” Rezabek told journalists after a speech in Prague today. While low rates pose a “significant risk” in the long term, “the economy needs an anchor and I consider rate stability to be one,” he said.

The Czech Republic, where exports including cars made by Skoda Auto AS account for about 70 percent of the economy, is recovering from the worst recession since the end of communism two decades ago. Gross domestic product expanded an annual 3 percent in the third quarter, compared with a 2.4 percent growth in the previous three months.

‘Close’

The central bank in November raised its forecast for 2010 economic growth to 2.3 percent from 1.6 percent and said the inflation rate should hold “close” to the 2 percent target in the next two years. It also signaled that a likely increase in rates had been postponed toward the end of 2011 as government budget cuts curb economic growth next year.

“I can’t see a big risk in inflation,” Rezabek said today.

The Czech koruna has depreciated 2.2 percent against the euro in the past two months, reducing its gains so far this year to 5.5 percent. Rezabek said he was “happy” the currency weakened and had “ abandoned its earlier rally because the pace of the appreciation was ungrounded.” The koruna was unchanged today at 24.966 per euro as of 4 p.m. in Prague.

“The fact that the koruna has now weakened can be described as a chance for the economy to take a breather,” he said.

To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.