Czech monetary policy may need to be more relaxed next year to ensure that inflation develops as the central bank forecasts, Governor Miroslav Singer said.
The foreign-exchange channel would be the next tool to use should the central bank decide that further monetary easing is needed, Singer said at a conference in Trutnov, Czech Republic.
The Czech economy shrank for a fourth consecutive quarter between July and September, data showed today, matching the longest decline on record as the government’s budget-deficit cuts constrained household spending. Weakening domestic demand is taming inflation, which pushed the central bank to cut rates to effectively zero and prompted talk of weakening the currency should the economy require more policy easing.
“There may be a need, at around the middle of next year, for monetary policy to be even more relaxed than now,” Singer said, reiterating that the central bank’s goal is price stability.
The koruna weakened 0.5 percent to 25.563 per euro as of 2:36 p.m. in Prague, its lowest in in fourth months.
The bank reduced the main two-week repurchase rate to a record-low 0.05 percent on Nov. 1, almost three-quarters of a point less than the euro-area benchmark. Most Czech central bankers agree the main interest rate should be kept at effectively zero until inflation risks rise significantly, according to minutes from their last rate meeting.
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