Under Michl, who took the helm at the bank last July, the bank halted a campaign of raising interest rates and held the main repo rate unchanged at 7%, despite suggestions by the bank's staff and outside analysts that policy be tightened further. But while markets have in the past months speculated on when the bank may turn and start loosening policy - around a 50 basis-point reduction is now priced into forward rate agreements for the end of the year, less than several months ago - the bank has taken a more hawkish stance. Michl reiterated on Monday that monetary policy was tight, but a hike was still an option at the next meeting at the end of June. (Reporting by Robert Muller, writing by Jan Lopatka; Editing by Bernadette Baum)
Messaging: jan.lopatka.thomsonreuters.com@reuters.net)) (Recasts with comments on fiscal policy)
PRAGUE, May 15 (Reuters) - Czech central bank Governor
Ales Michl welcomed the government's efforts announced last week
to cut the budget deficit over the next two years, and said
fiscal policy must work together with monetary policy to bring
down inflation.
Speaking at a university debate, Michl reiterated the bank's
stance that interest rates will remain high for a longer period
and market expectations of a first cut were premature.
"We welcome the state's effort for savings," Michl said, but
refrained from commenting on individual steps, saying that was
up to politicians.
The central bank has said that a lack of a savings plan
could lead to higher interest rates, after three out of seven
board members voted for a 25-basis-point interest rate hike on
May 3.
"For a long-term return of inflation to low levels, we now
need, in the first place, lowering of the pace of indebting the
country," he said.
He said ideally fiscal consolidation would continue
year-to-year and avoid hikes in indirect taxes.
The government's package presented on Thursday included cuts
in subsidies and hikes in direct taxation of firms and
individuals, and aims to cut the public sector deficit to 1.8%
of gross domestic product next year and 1.2% in 2025, from 3.6%
last year.
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