Czech Central Bank Rebuffs Prime Minister’s Attack on Rate Hikes

(Bloomberg) -- The Czech central bank pushed back against billionaire Prime Minister Andrej Babis's criticism of its efforts to curb inflation with higher borrowing costs.

The surprising February rate increase -- the only one globally this year -- prompted a rebuke from Babis, who said such moves are boosting banks' earnings while hurting the economy during a slowdown.

The bank is fulfilling its mandate, which is price stability, Vice Governor Marek Mora said in an interview with the Ekonom weekly to be published Thursday.

“Side effects, such as commercial banks' profits from depositing excess liquidity with the CNB, do occur, but it's not a problem that we would worry about,” Mora said.

Mora was responding to Babis's Facebook post from Feb. 23, in which the prime minister called the latest rate increase a “totally illogical” step that made loans excessively expensive for consumers and companies. He suggested the benchmark rate could be 0.5% instead of the current 2.25%.

Babis's other Facebook comments:

I don't understand the Czech National Bank's policy at all.

I don't understand how come the CNB wants to raise interest rates for commercial banks at a time of an economic slowdown. It's going against the people, the industry, and the economy as a whole.

The CNB is justifying this by saying it's fighting inflation, but that's clearly not working.

Obviously, the CNB is independent and I have never made comments about it. But now I have to.

The statements resembled President Donald Trump's criticism of the U.S. Federal Reserve. Babis, who rose to power with a campaign depicting traditional politicians as corrupt and incompetent, has been compared to Trump for his transactional approach to politics and anti-migrant rhetoric.

The Czech central bank is trying to weigh the impact of the global slowdown on the export-oriented economy against strong household spending, which has helped bring inflation above the bank's 3% tolerance limit.

In the Facebook post, Babis said linking his policies of raising pensions and public-sector wages to higher consumer prices is “absolutely absurd.”

The government has no influence over the central bank, although members of the rate-setting panel are singlehandedly picked by President Milos Zeman, Babis's main political ally. Zeman is scheduled to appoint Governor Jiri Rusnok's replacement in 2022.

“I don't want to comment on this much,” Mora said. “All I can say is that the prime minister is welcome to visit us any time. We'll gladly explain to him what we do and why.”

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Peter Laca, Andrew Langley

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