Czech Bank Choices Reduce Risk of Dovish Stance

Three seats on the board of the Czech National Bank (CNB) had to be filled and the president has opted for economists that can put concerns about a dovish stance to rest. Market worries had been high because the existing board had recently increased interest rates in the country in order to combat the highest inflation that has been recorded in the last three decades. On Wednesday, the announcement of the three appointments to the Czech central bank was made. Two of these people are former central bankers and this has definitely provided some much-needed predictability.

Last month, the new governor of the central bank had been appointed, which had come as a surprise because it was Ales Michl, who is a board member and will take the new position from July. In the last year, the bank has hiked up the interest rate by a whopping 550 basis points, which has received a great deal of opposition from Michl. Such an aggressive hike was prompted by one of the biggest spikes in inflation recorded all over Europe. Michl stated that the growth in price was mostly imported. There are seven members that make up the board and the two new members do not indicate that a dovish approach will get more preference.

The interest rate hikes of the Czech central bank had received the approval of Eva Zamrazilova, the new Vice-Governor. They were deemed necessary and timely on Wednesday at a ceremony conducted for announcing the new appointments. However, it was added that a deeper analysis was needed before any further steps could be taken. She stated that hikes in interest rates have never been popular and it was unlikely to ever happen. But, she added that they had been needed and will soon begin to tame the high inflation.

The announcement of the appointments saw the Czech crown extend its gains, as it climbed 0.7% against the euro to trade at 24.602, which brought it to a high of two weeks. There had been a 3.7% drop in the currency after Michl had been appointed in the previous month, which had resulted in bank intervention in the market. Zamrazilovaserved on the board of the central bank from 2008 to 2014 and had a more hawkish stance, as opposed to her colleagues. She is also the chief of the fiscal prudence council of the country and a right-wing economist.

Karina Kubelkova is one of the new appointments who serves in the Chamber of Commerce as an economist. Back in March, she said that the risks of high inflation could be managed via CNB’s effective monetary policy. President Milos Zeman made the two appointments, which makes it the first time for two women to be part of the central bank’s board. The board will be rounded out by Jan Frait, who leads the financial stability department of the CNB and served as a board member from 2000 to 2006. Frait had a dovish stance, but that was when the crown was recording gains.

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