Czechia’s new central bank chief says it will take two years for inflation to return to normal

Jiří Rusnok, Aleš Michl

Aleš Michl was named the new head of the Czech National Bank by President Miloš Zeman on Wednesday. The new governor of the Czech Republic’s central bank will replace the current head Jiří Rusnok from July 1.  During the ceremony, Mr Michl said that his main target will be to tackle the country’s record inflation rate.

The newly named successor of Jiří Rusnok believes that inflation is likely to reach around 15 percent. He expects that the process of returning inflation to the standard 2 percent level will take two years.

The problem of high prices is primarily the result of external causes, Mr Michl said, pointing especially to high energy prices. He plans to propose that the CNB stabilises its interest rates at the first meeting of the bank’s board under his leadership this summer. The bank will also evaluate the impact of its current monetary policy as well as other economic indicators before deciding how to proceed further.

The Czech National Bank has been raising interest rates already since last year. The most recent raise of the two-week repo rate by 0.75 percentage points to 5.75 percent in May has made it the highest since 1999.

President Miloš Zeman had four candidates to choose from and was secretive about his decision until the day of the official naming ceremony. However, he did say that he had decided about who the next head of the central bank would be already some time before.

Statements that high inflation is primarily being caused by the effects of the war in Ukraine are not accurate, because inflation in the Czech Republic had already reached double digit numbers before the Kremlin launched its invasion, the president said. According to the Czech head of state, there are two groups of economists when it comes to the inflation debate. One group, he says, see the current inflation problem primarily as caused by demand issues and argue that the raising of interest rates is an ideal way to solve the problem. Meanwhile, the other group sees its causes in expenditure problems and argues that raising interest rates actually helps bolster inflation. Both groups need to be heard out, the president said, while also announcing that he decided to select Ales Michl for the position of governor because the banker was critical to the policy of raising rates.

Mr Michl holds a PhD from the University of Economics in Prague. He worked as an analyst and investment strategist in the private sector while also working as an advisor for several of the country’s governments.  Since 2018 he has been a member of the Czech National Banks board of advisers.

He faced controversy in the past due to his position on the advisory board while also owning a stake in the Quant investment fund. In 2019, Mr Michl chose to create a private trust fund into which he placed his Quant assets. According to news site Aktuálně.cz, Mr Michl has refused to publish documents that would provide details on how the trust fund is managed.

Authors: Thomas McEnchroe , Hana Vincourová
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