(Bloomberg) -- The Czech central bank is in the process of easing its monetary policy but interest rates will stay higher than what they used to be over the past 10 years, according to Governor Ales Michl.
Rate setters in Prague need to keep borrowing costs elevated for a longer period of time and avoid making rushed, ad-hoc monetary policy steps and experiments, Michl wrote in remarks about his trip to the annual gathering of policymakers and academics in Jackson Hole.
“It’s better to have a more consistent, but overall more restrictive policy,” he said. “The economy should be based on savings, not on debt. If we remain strict, one day we will prevent a repeat of high inflation.”
The central European nation is still reeling from the impact of the worst cost-of-living crisis in three decades, which depressed household spending and hindered an economic recovery from pandemic lockdowns.
With inflation slowing back near the 2% target this year, the central bank has cut the benchmark rate by a cumulative 250 basis points since December, to 4.5%. Still, policymakers have said they will be cautious with further monetary easing due to continued growth in costs of services.
The long-term “stabilization” of inflation will be about reducing the amount of money in the economy, according to Michl. Price growth driven by demand may be more persistent and require higher rates than over the past decade, he said.
The Czech National Bank will hold its next policy meeting on Sept. 25, with investors betting on another rate reduction by at least a quarter-percentage point.
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