CNB: The Leader of the Pack


Source: Bloomberg


In his recent article "CEE central banks take proactive approach towards inflation" published on the Official Monetary and Financial Institutions Forum website (OMIF -, the former governor of the Czech National Bank, Miroslav Singer, comments on the approach of the CEE central banks that are ahead of their western counterparts in anti-inflationary efforts. With the Czech National Bank leading the pack with the recent 1.25 percentage point hike in the base rate, all the CEE banks have started taming inflation in a similar way.

Large central banks (including ECB, Fed and Bank of England) have hesitated to take action referring to the supposedly "temporary nature" of the inflationary pressures. Here, the question arises: When do they think will be the right time for action?

In my view, central banks are set to act and are well-qualified to do so. I am always a bit puzzled by the term "temporary" in relation to economic phenomena. Is it the year of the strange move, the quarter, the decade, couple of days ...?

It always starts as "temporary": In negative periods, expectations of the temporary nature of the events stems from people's quite understandable belief that it will soon turn for the better. But, a belief is just a belief - sometimes an illusion. As it may not crystalize (soon), central banks have to act at some point - and the CNB did. Correctly assessing that base rates close to 0% are not sustainable and, as and when situation allows, central banks are free to move down from the "highs" of 2.75% (not that high in a longer-term context) anyway.

...and Competent

Politicians and the media are quite happy to babble-on about inflation and to criticize central banks as they need to impress inexperienced readers. You do not have to be a top macroeconomist to see that politicians' statements on economic phenomena (e.g. inflation or base rates) are vague and faltering. Very frequently, they are not well grounded. The media have the duty to bring these statements daily and - to some extent - become slaves to the economic incompetence of politicians.

In conclusion, one of the key tasks of the central banks - in many cases the top priority - is to maintain price stability. Central banks have been doing it for ages with base rates being their key tool. So I suggest we listen to the qualified and experienced. Regardless of possibly differing views and steps, central bankers - unlike politicians - rarely fail to fulfill the competency criteria.

Michal Mareš
Member of Investment Committee
AKRO investiční společnost, a.s.
Prague, 6th December, 2021


This article does not constitute investment advice or a recommendation to buy or sell any security.