Czech Leader Urges Strong Koruna Before Central Bank Revampby
Weak koruna only short-term benefit for exporters, Zeman says
Rusnok still sees reasons to maintain cap on currency gains
Czech President Milos Zeman called for a strong koruna to boost innovation, challenging the central bank’s weak-currency policy before he starts revamping the rate-setting board later this year.
Zeman, who has the exclusive right to name policy makers and will replace Czech National Bank Governor Miroslav Singer when his last term expires on July 1, intensified his criticism of the regime that prevents the koruna from gaining beyond around 27 per euro. While the president acknowledged the weak currency brings short-term benefits to exporters, the country should look beyond that, he told a business conference in Prague on Thursday.
“A weak currency is a type of cushion that we’re comfortably resting upon,” said Zeman, who has criticized the policy for making Czechs poorer in euro terms. “A strong currency forces all of us to innovate, to increase the productivity of labor and to become more competitive” and “that’s one reason why I’m an advocate of a strong Czech koruna.”
Zeman is one of the most outspoken critics of the foreign-exchange regime, which was introduced with interventions to weaken the koruna in 2013, and has said it’s also delaying the country’s entry to the euro area. Rate setter Jiri Rusnok, whom Zeman has chosen as his preferred candidate for governor, defended the policy on Thursday and said there were still reasons to both maintain it and to prevent excessive gains in the currency once it’s lifted. Earlier this week Zeman said Rusnok will become governor regardless of their diverging views.
Zeman made Rusnok a board member last February and said he would like the former pension-fund executive and interim prime minister to replace Singer. Rusnok has since repeatedly backed the koruna cap and said slower-than-expected inflation may prompt the bank to extend it until early 2017.
That’s longer than the pledge reiterated by Singer at the monetary authority’s policy meeting in December to keep the limit in place at least until the second half of this year, probably at around end-2016. Rusnok, who with his colleagues has defended the unconventional tool as instrumental in helping prevent deflation and aid a recovery from the longest economic recession on record, said he anticipated no major shift in policy after changes to the board. The first of two potential terms for board member Kamil Janacek also expires on July 1.
“I hope no dramatic changes will happen in this case because that would be unprofessional,” Rusnok said. “We will keep fulfilling our mandate set by the law and the constitution, and conduct monetary policy that will pursue price stability and financial stability.”
The Czech currency has been stuck just above the intervention level for almost three months now, trading at 27.02 per euro as of 4:01 p.m. in Prague. The koruna has appreciated 2.7 percent over the past 12 months, making it the best performer in post-communist Europe.