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Further Czech Rate Cuts Wouldn’t Be Positive, Policy Maker Says

Dec. 13 (Bloomberg) -- A further reduction in interest rates wouldn’t be positive for the economy, central bank board member Eva Zamrazilova said.

Zamrazilova commented on exchange-rate developments and the possible impact on inflation in a Dec. 12 interview.

On global economic trends:

“We are seeing a fundamental change in global economic developments. In this respect, stagflation isn’t an unimaginable word for me.

‘‘Global efforts to ease monetary policies and add liquidity have been counterproductive and they haven’t helped domestic economies.

‘‘The added liquidity has been channeled around the globalized economy and has fueled price pressures in various geographical places and various commodities or asset classes. So attempts to support domestic demand has mainly resulted in fueling inflation.’’

On exchange rate and inflation risks:

‘‘Currency developments become important to me at the time when I think that deviation of the exchange rate from the forecast becomes a factor influencing inflation and inflation expectations, and I think this may already be the case at this moment.

‘‘At present, we need to think whether the development with the koruna isn’t the factor that may push inflation outside the target corridor.

‘‘A reduction of interest rates in the Czech Republic can’t influence demand in our main trading partners, and I don’t consider this to be a step that could lead to anything positive in the Czech economy.

‘‘My view from a year ago was that the rates should increase. What I’m thinking about now is whether the current weaker exchange rate may be the result of overly relaxed monetary policy over the past two years.

‘‘Czech interest rates have been lower than euro zone rates for a relatively long period of time and I’m thinking whether this could be a factor that led to the koruna’s exchange rate being weaker than the forecast at present.

‘‘I’ve been thinking for a year and a half as to whether rates shouldn’t be higher, and I’m constantly thinking about it. Only at the time of an escalating crisis in the euro zone did I think it wouldn’t be appropriate to take measure in the tightening direction.

‘‘Our primary goal is to keep inflation expectations under control, or, in other words, prevent them from getting out of control.’’

To contact the reporter on this story: Peter Laca in Prague at

To contact the editor responsible for this story: Balazs Penz at

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