(Bloomberg) -- Czech policy makers kept borrowing costs unchanged and reiterated their currency-intervention pledge that’s boosted the koruna and helped tackle the worst cost-of-living crisis in three decades.

The central bank left its key interest rate at 7% for a fifth consecutive meeting on Thursday, as expected. Governor Ales Michl pushed back on market bets in favor of significant monetary easing this year, saying the board will decide between maintaining or hiking rates in March.

“The majority of the board supported rate stability for a longer period of time,” he told reporters after the meeting in Prague. “I assume that interest rates will remain higher than the market is currently pricing.”

While the economy is facing strong cost pressure from abroad and demand-led pressure at home, inflation will ease significantly after an expected jump in January, and return closer to the 2% target in mid-2024, according to Michl. He reiterated that the highest rates since 1999 have already weakened household spending, cooled the property market and slowed loan growth.

Since a revamp of the policy-making panel last summer, the central bank’s management has preferred to smooth out the rate path instead of following staff projections that have implied further hikes.

The monetary authority on Thursday reiterated that it was ready to step into the market to prevent excessive exchange-rate swings, extending a regime introduced in May to halt a sharp depreciation. The pledge has attracted capital inflows by providing a backstop for investors buying the Czech currency, sending the koruna last week to its strongest level since 2008.

‘Super Important’

That appreciation is “super important” because it makes imports cheaper and helps the central bank achieve its price-stability mandate, which justifies the negative impact it might have on Czech exporters, according to Michl. Consumer price growth slowed slightly to 15.8% in December, but the central bank expects a “significantly” higher figure for January.

“Our biggest problem right now is high inflation, not exports,” he said. “A strong koruna is the cornerstone of our efforts to reduce inflation.”

Read more:

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The governor delivered a “slightly hawkish” message by signaling that future rate cuts will be slower than most investors expect, according to strategist Jaromir Gec at Komercni Banka AS in Prague. Before the meeting, money markets priced in about 150 basis points of policy easing this year.

Michl, who as a board member voted against all nine rate hikes under the previous leadership, on Thursday called for relatively tight monetary conditions for the rest of his and most of his colleagues’ six-year term.

“We discussed this thoroughly, and it seems that over the next five and a half years we will need to be significantly stricter than the previous board,” he said. “We will not allow the emergence of so many demand pressures.”

--With assistance from Peter Laca.

(Updates with governor’s comments from second paragraph.)

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