Holub will be involved in two more rate decisions before the end of his mandate, interest rates will fall

To function well, a central bank needs political and financial independence in the first place, or sufficient firepower in the form of foreign exchange reserves. Similarly, it is also important that it is led by the right mix of hawks and doves. In simple terms, the hawks are more comfortable with higher interest rates and the doves with lower ones. Well, the Czech National Bank (CNB) will not lose a dove, but a pigeon will soon leave it. CNB Board Member Tomáš Holub will not seek another six-year term.

And what was Holub's relationship to interest rates? It has to be said that Holub supported a rapid increase in interest rates in an attempt to quell the inflationary wave. This was the case during the "governorship" of Jiří Rusnok. But the composition of the Bank Board was shaken to its foundations in mid-2022, when Aleš Michl became its governor. From then on, Holub was only a minority member of the council, which continued to raise its hand in favour of raising rates, but in vain. At that time, CNB rates remained at 7 %. Let's mention the end of last year, when Holub, together with Deputy Governor Jan Frait, formed a "friends of faster rate cuts" than the Board eventually voted for.

And who will replace Holub? President Petr Pavel has decided on 1 December to appoint Jakub Seidler to the CNB Bank Board. More important than whether he is a hawk or a dove is the fact that he is an experienced economist. The market has to have complete confidence in central bankers that they know what they are doing. If they don't, investors will bet against them - in this case, the crown. Seidler's background is that he was ING Bank's chief economist for the Czech Republic. He now works as chief economist at the Czech Banking Association. Moreover, he is no stranger to investors thanks to his commentary on the economy. And let's pour ourselves a glass of wine - sometimes it happens that the market misunderstands the words of a central banker or even a central bank governor. Let us recall the many months of scaremongering about interventions before their launch in the autumn of 2013.

And what does the CNB expect in the coming days? Holub will be involved in two more rate decisions before the end of his mandate - next week and at the beginning of November. How will the meetings turn out? The aforementioned Tomas Holub recently said: "Ending or interrupting the interest rate cut cycle now would be premature. The economy is bouncing off the bottom, but only very tentatively." Jan Kubíček of the Bank Board added: "I am glad that we have eased the pace of rate cuts to the standard 0.25 percentage point, but I think the time has not yet come for us, like the European Central Bank, to cut rates once, not a second time and then again."

We therefore expect that nothing will change in the next week as CNB rates will continue to fall at a rate of 25 basis points. In other words - today the CNB base rate is at 4.50 %, and we expect it to be in the range of 3.75 - 4.00 % at the end of the year. Therefore, the koruna should continue to remain just above the 25 koruna level. It weakened slightly to CZK 25.10/EUR today. The dollar strengthened slightly to USD 1.113/EUR today.

The Prague Stock Exchange index PX today wrote off 0.3 %. The Slovak SAX index stagnated.

Jiří Cihlář and Markéta Šichtařová, Eurodeník 23. 9. 2024

(za)

PHOTO - cnb.cz

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