The governor of the Czech National Bank has received one of the most prestigious awards in the sector – the title of European bank governor of the year from The Banker magazine. Jiří Rusnok was given the award for dropping the low crown regime and trying to put a lid on a domestic real estate bubble.
Jiří Rusnok is not the first Czech national bank governor to be judged the European central bank governor of the year. His predecessor, Miroslav Singer, received the same award in 2014 after launching the so-called low crown policy aimed at avoiding deflation when interest rates had already hit zero and other tools for managing the economy had to be found.
Rusnok’s main claim to the title was easing the country out of the low crown regime in place since November 2013 under which the central bank had pledged to keep the crown at or around 27 crowns to the euro. The policy boosted exports and at the same time made imports more expensive, boosting inflation slightly when significant price rises hardly threatened.
The experience of other countries unshackling themselves from currency pegs is ample proof that there’s a good way and a bad way to go about it. The Swiss central bank dropped its low franc to euro policy at the start of 2015 without much warning and the result was a soar away sudden rise in the local currency. That did a lot of damage to local exporters, especially small companies without the financial sophistication needed to hedge themselves against such disruptive foreign exchange tremors.
Meanwhile, the Bank of Israel is under increasing fire for keeping with its long term low shekel policy amid criticism it’s been in place too long and the impact of ending the policy has snowballed and made the move more problematic.
The Czechs looked at the Swiss experience and were keen not to repeat it. They decided the best way to do that was to manage expectations, keep the market aware that the end of the low crown policy was looming and warn that currency interventions would be kept in reserve if the crown started to climb too high. When the euro cap came off the crown inevitably rose, but it was not a dramatic Swiss style rise although by the end of the year the crown was, alongside the Polish zloty, the second highest rising currency in the world according to the Bloomberg news agency.
The Czech national bank also won praise for trying to put a lid on a local real estate boom which has seen price rises in Prague and other major cities among the highest across Europe. One move here was to increase the deposits that buyers must now have before they qualify for any mortgage loans. One hundred percent mortgages are a thing of the past. And the bank also increased the reserves it holds to deal with future problems.
As Jiří Rusnok recently told Czech Radio, the outlook for the Czech economy looks positive for the near future:
"Our forecasts suggest that there will continue to be strong demand for goods both on the home market, which has seen a very strong growth in wages and high levels of employment, and for exports, which for an export oriented economy is exceptionally important. The rest of the Eurozone is doing better than expected and that is where our optimism stems from."