Final Word from Tuesday, June 7, 2022

Gov. Jiří Rusnok told Aktuálně.cz that one reason he expects an interest-rate hike of at least 75 basis points at the monetary-policy meeting on June 22 is that the crown is weaker than the CNB's scenario projected. For four years, with a one-year covid break, Rusnok has been revaluing the crown with the use of interest rates, yet the situation is now changing dramatically. The country's leading industrial sector, automobile production, is suffering due to covid and the war in Ukraine; high energy rates are hurting everyone; Czech industry is one of those most vulnerable to an eventual cutoff of Russian oil and natural-gas imports; government borrowing is growing at one of the fastest rates; the Fiala cabinet is promoting euro-accounting; Czech SMEs that do business in crowns are being priced out of the borrowing market; Industry Min. Jozef Síkela is playing political games instead of providing solutions. Rusnok is still concentrating on the interest-rate differential, but the fundamentals of a strong crown have collapsed. We don't know whether the equilibrium rate is Kč 27/euro or Kč 30, but it's not Kč 24. [ Czech Republic Czech National Bank ]