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Czech National Bank for the first time in its history, it asked external experts to assess how the documents used by members of the banking board are actually created in the central bank when deciding on interest rates, the CNB governor said on Tuesday Ales Michl.
These decisions have an impact on the entire Czech economy, the financing of companies and the price of mortgages or other loans that people take out.
SZ Byznys informed about the assignment of assessments already in March. The audit procedure was approved by the CNB banking board at the beginning of the year, the bank’s spokesperson confirmed the information in March, although the original intention was to speak publicly only about the results of the audit.
Governor Aleš Michl he presented the assignment of assessments in a debate at the University of Pardubice as a novelty, saying that it is a standard step, commonly used abroad.
“We take lessons from the mistakes of the past seriously. We commissioned the development of assessments of the implementation of monetary policy. We expect from this revision that it will help to improve especially our forecasts and modeling of the problem, that means the interaction of three bodies – the relationship between the government, the central bank, and the private market,” said Michl.
However, the governor did not clarify how big the central bank’s ambition is in case the audit finds any problems. That is, whether and how big changes she is willing to undertake. Theoretically, it can be a big intervention. The law only stipulates that the CNB is responsible for price stability, but it interprets this task on its own – and can change its goals on its own. However, the result of the review can also be only minor technical changes or reassurance that the CNB is doing everything right.
According to Michl, there will be three analyses, focusing on the interaction between the monetary policy of the central bank and the economic policy of the government, the transfer of the results of the CNB’s models into recommendations for monetary policy, and the setting of the models themselves and their interaction.
The first assessment will be prepared by Professor Martin Mandel and Associate Professor Karel Brůna from the Department of Monetary Theory and Policy at the University of Economics in Prague. The author of the second will be Professor John Muellbauer from Nuffield College, University of Oxford. The third analysis will be prepared by Roman Šustek from Queen Mary University of London.
“We will assess the results at the bank board and publish the conclusions sometime at the turn of the year,” said Michl.
The Canadian central bank, for example, recently underwent a similar revision. As part of the process, there was a serious discussion about what to target when monitoring inflation. In the end, the bank stuck to the standard commitment, which is also used in the Czech Republic – i.e. that the increase in prices from year to year should not exceed a predetermined limit, in this case it is two percent.
The European Central Bank or the US Fed also commissioned analyzes of their monetary policy. In both cases, with the results in hand, the central banks adjusted their inflation targets, but also the way they communicate, i.e. how they announce their steps, but mainly indicate how they are likely to proceed further. which is usually the most relevant information for the markets.
