OGR's Managing Partner, David Vavra, warns of persistent inflation and unclear monetary policy of the Czech National Bank


March 14, 2023

David Vavra, OGR’s Managing Partner, gave an interview (in Czech) to a major Czech TV news channel on inflation prospects in the Czech Republic and the monetary policy of the Czech National Bank. He asserted that while headline inflation numbers are likely to go down quickly in the coming months, core inflation is very persistent and it is unlikely that headline inflation will fall durably below 10% in 2023. The reaching of the inflation target of 2% in 2024 is under jeopardy too owing to unclear monetary policy strategy of the Czech National Bank and a possible entrenchment of high inflation expectations. He further opined that the Czech National Bank has quietly abandoned an interest-rate based Inflation Targeting regime in favor of a regime based on control of the exchange rate. He pointed out the fact that while the CNB keeps repeating that an interest rate increase is consistent with its forecast and reaching of the target, it has not raised the interest rate since June 2022. Instead, the CNB emphasizes its commitment to suppress high exchange rate volatility without any further explanation. Finally, he also enumerated several perils of such a strategy, including the difficulties of targeting inflation using the exchange rate and a potential loss of credibility for the CNB’s capacity to deliver sustainably low inflation.

Watch the interview on the link below: