Central bank board member: growing deficit could lead to raising interest rates

Czech National Bank board member Pavel Řežábek told the Bloomberg news agency on Wednesday that a growing deficit of the state budget could prompt the central bank to raise interest rates even before the country’s economy has recovered from the recession. Mr Řežábek warned that the current interest rate, which at 1.25 percent is one of the lowest in the country’s history, might present considerable risks should the Czech Republic’s economy deteriorate.

The Czech government approved last week a draft budget for 2010 with a deficit of 230 billion crowns, or more than 13 billion US dollars. The cabinet is at the same time pushing to introduce a series of cost-cutting measures that would cut the deficit further to around 170 billion crowns. Finance Minister Eduard Janota said on Wednesday the cabinet would wait to see if the main political parties agree with these measures before putting them forward.