New Czech central bank governor says reducing inflation is priority

PRAGUE (Reuters) -Reducing inflation will be the Czech central bank’s priority, new governor Ales Michl said in a statement on Friday, starting his six-year term at the helm of the bank.

“The priority will be to reduce inflation,” Michl said in a statement issued on his first day in office.

“We will continue to pursue price stability, that is to maintain low and stable inflation, by targeting inflation.”

Michl resisted all steps in the bank’s campaign of tightening interest rates over the past year, which brought the main repo rate to 7% last month from 0.25% a year ago.

Michl did not reveal any concrete views on the next course of policy in the statement.

Upon his appointment in May, he said he expected to propose rate stability for some time at the first monetary policy meeting of the bank’s board, due on Aug. 4.

Michl’s view has been that inflation has been mainly driven by external price shocks and thus outside the focus of monetary policy.

Michl was joined by three other new members on the bank’s seven-member board – two former members Eva Zamrazilova and Jan Frait, and former Chamber of Commerce economist Karina Kubelkova.

Apart from interest rate hikes, the central bank has been intervening in the foreign exchange market to prevent the crown from weakening. A weaker currency adds to inflation pressures.

Michl did not directly comment on his position on the interventions.

He said the bank would continue in macroprudential policies and market supervision to maintain financial stability and banking system resilience.

“We will continue to coordinate monetary and macroprudential policy so as to maintain confidence in the value of the Czech koruna and preserve the stability of the macroeconomic environment,” he said.

Michl said the bank would also hold a dialogue with the government on wider economic policy promoting a sound economic environment.

Czech inflation soared to 16% in May, far above the bank’s 2% target, and is expected to peak in the summer before starting to decline.

(Reporting by Jan Lopatka; Editing by Toby Chopra)