Czech Central Bank Board Will Lose Supporter of Rate Increase

One of the Czech central bank’s policy makers who voted for a quarter-point interest rate increase on Feb. 3 will leave the central bank’s board this week, minutes from the monetary meeting showed.

The central bank board left the benchmark two-week repurchase rate at a record-low 0.75 percent last week. Eva Zamrazilova, Kamil Janacek and Robert Holman, who voted for a quarter-point rate increase, were outvoted by the remaining four policy makers. Holman, whose term expires this week, will replaced by Lubomir Lizal on Feb. 13.

The Ceska Narodni Banka is weighing inflation risks against an economic recovery as its board members debate when to start raising interest rates. The bank’s latest forecast sees the inflation rate close to its 2 percent target through the first half of 2012.

“The board agreed that the risks associated with the February forecast were significant and were pointed in both directions,” the minutes published on the central bank’s website today showed. “In this context, it was repeatedly said that a premature rate increase might have a larger negative impact on the economy than a delayed increase.”

The minutes don’t reveal individual opinions of board members.

“It was also said several times that an increase in rates would clearly signal the end of the crisis and that it would not have negative economic impacts because it would not start to have an effect until the first half of 2012 when growth will accelerate,” the minutes said.

The bank has kept rates stable since May after cutting them by 3 percentage points in less than two years as the global crisis pushed the country into the worst recession since the end of communism in 1989. Gross domestic product grew 2.8 percent in the three months through September, the most in nine quarters.

The debate on the start of rate increases received a new impulse this week when inflation data showed an unexpected slowdown in consumer-price growth.

January Inflation decelerated to 1.7 percent, the slowest in seven months, compared with 2.3 percent in December, the Statistics Office said on Feb. 9.

Inflation was slower than forecast mainly due to a smaller- than-expected increase in food prices, the central bank said. It estimates inflation will match its 2 percent target in the first quarter of 2012 and accelerate to 2.1 percent in the following three months.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

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