Guard changes at Czech National Bank with new governor

The changing of the guard has taken place at the Czech National Bank with a new incoming governor replacing the outgoing Miroslav Singer. And the new incumbent, Jiří Rusnok, is facing some interesting times with the expected exit from the bank’s low crown policy looming and the debate once again revived now about if and when the Czech Republic will sign up for the euro.

Miroslav Singer, photo: Filip Jandourek

Miroslav Singer yesterday ended his six year term as the governor of the Czech National Bank. The new head of one of the country’s most respected institutions in the country is former finance minister and caretaker prime minister Jiří Rusnok. It’s the president who makes the choice of the bank head and board and there’s little doubt that Rusnok is close to head of state Miloš Zeman.

For the outgoing governor, Miroslav Singer will very much be remembered for the low crown policy, keeping the crown pegged low against the euro, from November 2013. It was an instrument of last resort the bank was pushed into using to fend off the dangers of deflation when interest rates were already so low that they had ceased to be an effective market moving mechanism.

In an interview with Czech Television, Singer defended himself against the accusations that the policy has overwhelmingly favoured exporters to the detriment of other sections of the economy.

Jiří Rusnok, photo: Filip Jandourek

“There’s been speculation that this just favours exporters but this is a somewhat mistaken evaluation. Imports have also risen. In the first year, 2014, I think it was by around 12 percent over the year. That is evidence that the economy picked up, consumption and investments rose and imports increased in many sectors of the economy. It helped encourage demand and as regards the balance of trade there was no overwhelming impact.”

And Singer says the low crown has been a success with the Czech Republic now among Europe’s best performing economies with unemployment down by around 200,000 and vacancies up by around 130,000.

But the retreat from the low crown will be one of the main tasks of the new governor from July 1 with the timing and signal given to the market crucial for a smooth transition that will not hurt the Czech economy.

Jan Bureš|Photo: Tomáš Adamec, Czech Radio

Jan Bureš is an economist with Poštovní Spořitelna and says that he does not expect the change at the top to have a dramatic impact:

“I do not think there is going to be any significant change in monetary policy. I think the new governor is going to stick to the strategy of Miroslav Singer, who advocated the interventions against the Koruna. Maybe, Mr. Rusnok is not such a big fan of the interventions but I think and believe he will stick to the continuity here and rely a lot on the experts within the Czech National Bank. And therefore I believe there is not going to be a major huge shift.”

Although Mr. Rusnok is clearly more of a euro enthusiast than the very skeptical Mr. Singer, it’s the Czech government that makes the running and Czech public opinion is so opposed that no action is seen likely here.