Member of the Board of Czech National Bank Kamil Janacek stated Wednesday that if, in the future, the economy started undergoing a dynamic drive again, accompanied by credit and asset price booms, monetary policy-makers might need to step in directly using various credit-related channels.
Speaking in Istanbul at the 4th Istanbul Finance Summit (IFS), officially sponsored by Anadolu Agency (AA), under the theme of "finance of sustainable expansion," Janacek stated the authorities should apply a concerted set of microprudential and macroprudential measures to tame excess optimism and mitigate its potential consequences along with factors mitigating procyclicality embodied in regulations may ensure a build-up of buffers, but tougher supervision must prevent bankers from taking undue risks.
In a booming economy, currency appreciation can contribute into financial stability especially via reducing risk-taking through a “favourable” nominal illusion and it may work against overly optimistic expectations in the corporate sector, to tame the credit-enabled excessive investment in boom periods, Janacek said.
Stating also that seemingly, sustained currency appreciation should create an incentive for households to borrow in a currency becoming cheaper, Janacek noted that the people were not that rational and that they “suffer” from nominal illusions.
"The share of foreign currency loans provided to households has been lowest in two countries with a history of profound and sustained nominal currency appreciation – the Czech Republic and Slovakia," Janacek added.
Janacek stated also the authorities in countries with fixed exchange rates (or in currency unions) may resort to monetary policy measures other than policy rates and interventions, as well as to macroprudential policies if needed and stated the story of the euro area shows that having neither autonomous monetary policy, nor national macroprudential policy was dangerous.
Born in Czech Republic's capital Prague in 1943, Kamil Janacek is the author of 19 books, 70 research studies and more than 150 articles in Czech and foreign journals. He teaches at the Faculty of Economics at the University of Economics in Prague, where he is also a member of the Scientific Council. He has received foreign research grants from NATO, the UN and the EU. Janacek was appointed as member of the CNB Bank Board with effect from 1 July 2010.
The 4th Istanbul Finance Summit (IFS'13), to be held between September 18-19, will host important figures from the global financial world from North America, Europe, the Gulf Region and East Asia. The summit will provide a platform for state-of-the-art discussions on the current condition and future direction of world finance and will bring together leading global policy makers, bankers, corparate financiers and regulators, among others.
The Istanbul Finace Summit is one of the premier financial events in the world. Convening annually in Istanbul, IFS brings together world's renowned financial and economic personalities as speakers and representatives of major financial and economic businesses as participants.