Next Czech central bank chief wants strong crown based on fundamentals

Reuters
·2 min read
FILE PHOTO: Czech Crown coins are seen in front of a displayed logo of Czech central bank (CNB) in this picture illustration

PRAGUE (Reuters) - Incoming Czech central bank Governor Ales Michl said on Monday he wants a strong crown currency based on long-term cash flows and investor interest, reiterating his stance days before he is due to take the helm at the bank.

Michl takes office in July amid a year-long tightening cycle that has seen rate hikes of 675 basis points, which Michl has voted against. He has pledged rate stability ahead.

The board is also continuing to use market interventions as a complementary policy tool to prevent undesired weakening of the crown from driving up inflationary pressures.

Michl has not directly commented on that policy since his nomination in May but in a weekly column that he writes for daily Mlada Fronta Dnes, he said on Monday conditions for a strong crown were still missing.

He said the crown would be strong when three conditions were met: long-term balanced public finances, strong exports and a trade surplus, and a current account that does not deteriorate.

"The Czech Republic is not fulfilling any of this now," he wrote, reiterating comments he made in an interview with magazine Ekonom on May 26.

The bank first launched interventions to halt a sharp drop in the crown after Michl's nomination in May raised concern about a dovish shift in the board.

The bank has continued with the interventions as the crown and other central European currencies come under pressure now that major central banks like the U.S. Federal Reserve have resorted also to rate hikes.

The central bank has consistently voted 5-2 for rate hikes in the past year but three of the hawkish members, including outgoing Governor Jiri Rusnok, will leave the board this month.

One of the new members, incoming Vice-Governor Eva Zamrazilova, voiced support for using currency interventions in an interview with news website Seznam Zpravy at the end of March, saying that tool would be "less painful" than raising interest rates further.

(Reporting by Jason Hovet; Editing by Mark Heinrich)

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