Czech Leader Looks Past Currency Spat With Central Bank Pickby and
New Governor Rusnok will take helm of policy board on July 1
Rusnok will oversee preparations for scrapping koruna cap
Czech President Milos Zeman named rate setter Jiri Rusnok as central bank governor, promoting a long-time ally despite disagreements over the country’s unconventional monetary stimulus.
Rusnok’s six-year term will start July 1. He’ll replace Miroslav Singer, dubbed by the country’s top tabloid as “the man who made everything more expensive” for intervening to weaken the currency and imposing a Swiss-style cap on its gains. While Zeman has repeatedly condemned the policy as delaying euro adoption, the 55-year-old former interim prime minister and pension fund executive has defended his predecessor’s decision, saying it helped avert deflation and recover from a record-long recession.
The soft-spoken graduate of the Prague Economics University also inherits near-zero interest rates and will have to guide policy beset by disinflation risks stemming from cheap commodities. Like in neighboring Poland, where the new central bank head also has close ties to the president, Rusnok has pledged continuity without major policy shake-ups.
“We don’t always share the same opinion, just like it was the case with Governor Singer, but I have always preferred qualification and experience over someone just parroting my views,” Zeman said of Rusnok, after appointing him at Prague Castle on Wednesday.
Rusnok will oversee preparations for scrapping the limit on koruna gains, now set at about 27 per euro. The bank has repeatedly intervened in the market since the cap since the cap’s 2013 introduction, and Rusnok said he’ll endeavor to secure a smooth exit and prevent sharp appreciation when policy makers remove the koruna’s shackles. The regulator sees itself keeping the currency regime in place until around mid-2017.
The central bank is also in the midst of a debate whether to use negative interest rates to deter speculative capital inflows once it axes the cap. Rusnok has said he sees a “low likelihood” of cutting the benchmark from 0.05 percent, which policy makers call “technical zero,” but he’s also warned the central bank can’t rule that out if it needs to cool excessive strengthening pressure.
Record-low interest rates are helping the government reduce its borrowing costs as it increases spending to boost growth. The yield on the 30-year state bond stood at 0.53 percent on Wednesday, 36 basis points above similar German debt and compared with an all-time low of 0.31 percent in March, according to data compiled by Bloomberg.
After appointing Rusnok, Zeman told an economic conference he plans to name Oldrich Dedek to the bank board next year. Dedek, who served one term on the board that ended in 2005, is now representative for euro adoption for the government, which has not set a date for a potential currency switch.
The president last week appointed two other new policy makers, Rusnok’s former colleagues Vojtech Benda and Tomas Nidetzky, saying he wanted to strengthen the new governor’s team on the rate-setting panel. The changes represent a shift in the regulator’s leadership from the policy board shaped by ex-President Vaclav Klaus, an outspoken critic of the European Union and the euro area.
Rusnok has been a common fixture in Zeman’s political career. A member of the president’s former Social Democrat party in the 1990s, Rusnok served as as finance minister in his cabinet in 2000. After leaving the party, which is now the strongest force in the ruling coalition, Rusnok pursued a career in finance, eventually becoming the head of ING Groep NV’s Czech pension fund.
Their alliance resumed in 2013 after the center-right government of Petr Necas collapsed amid allegations of corruption. Using a mandate that frustrated parties across the political spectrum, Zeman bypassed parliamentary procedures and tapped Rusnok to lead an interim administration.
While Singer and Zeman have clashed over the currency-cap regime, the outgoing governor said on Wednesday the decision to select Rusnok as his successor was a “wise choice.”
Zeman initially said he would only appoint policy makers who won’t do “unnecessary experiments” with the economy, but he named Rusnok to the bank’s board two years ago, even after the now governor appointee openly backed the intervention regime. Rusnok said on Wednesday he’ll seek continuity in the policy of supporting the economy.
Rusnok’s elevation to governor ensures “consistency in the functioning of the bank board,” David Kocourek, an analyst at Komercni Banka AS in Prague, said in a note earlier this month. “With the new governor comes hope that transparent decision-making will be strengthened further, both in relation to the monetary policy and regulation of the financial market and the banking sector, which will face great challenges in the future.”