The head of the central bank of Czech Republic Ales Michl has called on the government to balance its budget to help prevent any future inflation resurgence, Bloomberg reported.
According to what Michl said in a interview with the CNN Prima News Channel on Today, Sunday 5th of January 2025, policymakers in Prague, the capital city of Czech, want to keep strict monetary policies to limit borrowing by households, businesses, and the government.
Michl added that they stopped cutting interest rates to review new data and the economic situation last month. He also cited that they will decide what to do next at their upcoming meeting in February.
It worth noting that inflation in the Czech Republic is slightly above the country’s central bank’s 2% target. However, the apex bank’s governor is sticking to strict monetary and fiscal policies, even though the economy is growing very slowly.
Prime Minister Petr Fiala’s government has introduced one of Europe’s toughest austerity plans, but it hasn’t fully closed the budget gap due to high spending on defence and infrastructure.
Michl says the budget deficit, rising service costs, and a recovering housing market are driving inflation. “The biggest risks to inflation are the state budget deficit and too much money in circulation,” he said. “We’re not in a crisis, so we need a balanced budget to fight inflation effectively.”
The Czech Republic’s strict approach to tackling inflation stands out in Central Europe, where other nations are grappling with similar challenges. While the apex bank’s hard Michl talks about the importance of balancing budget and tightening monetary policy, critics argue that austerity measures could stall economic growth further.
Local business owners in the country have voiced concerns over rising borrowing costs, which are making it harder to invest and expand. Meanwhile, households are feeling the pinch as housing prices begin to recover, adding pressure on affordability.
Compared to its EU neighbours, the Czech government’s aggressive austerity plan places it among the most fiscally disciplined, but questions remain about its long-term sustainability.
Defence and infrastructure spending continue to weigh heavily on the budget, even as inflation slows. Economists point to the need for structural reforms to ensure future stability, with some suggesting targeted cuts or revenue boosts instead of blanket austerity.
This debate highlights a growing divide between those prioritising immediate inflation control and those focusing on economic growth.
