It was a vote of no confidence.

How else to describe the FX market's reaction to the appointment of Aleš Michl as the new governor of the Czech Central Bank (CNB)?

Within a short time, the krona depreciated by 3.7 percent.

A little at first when the first rumors started to appear, then even more so when President Miloš Zeman confirmed them.

Michl promised: "I can assure you that the CNB will remain conservative.

We will fully meet the goals of monetary and financial stability, nothing will change in the next six years.” But that didn't help much anymore.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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The next day, the Central Bank Council, the central bank's highest body, had to meet for an extraordinary meeting.

Not because of Michl's appointment, but because of the "considerable devaluation of the crown".

The central bank intervened to stabilize the course and take the top out of the Michl discount.

Since then, around 24.70 crowns have to be paid for the euro again, no more than 25.30 crowns.

The shock is now a month and a half ago, this Friday Michl took up his new post.

Who is the man?

And why, as bank analysts bluntly put it, does it trigger a “scenario of fear”?

"Quite strong exchange of views"

In order to understand this, you have to delve into the previous monetary policy of Česká národní banka, which is often compared to the Deutsche Bundesbank because of its conservative, "hawkish" monetary policy when it was still sovereign in terms of monetary policy.

A policy of cheap money following the example of the European Central Bank is anathema to the central bankers in Prague.

They were among the first to raise rates last spring to curb post-Covid inflation.

And with the exception of Hungary, no central bank in Europe has raised interest rates so boldly since then.

In nine steps, because of the annual inflation, which has recently risen to over 14 percent, it has raised the interest rate from 0.25 percent to 7 percent, most recently last week with an unexpectedly sweeping step of 1.25 percent.

As so often before, this also happened with a solid majority of five votes to two.

If you interpret the signs correctly, there was another big bang.

"But yes, we argued a bit," said the outgoing chairman Jiří Rusnok afterwards, classifying the "rather strong exchange of views" on Czech television.

The professional observers at the ING Bank made a “last hurray” for the monetary policy hawks on the board.

Monetary dove commands Prague hawk

Because now one of those who rejected the rate hikes of the past has become chairman.

Or, to put it in the language of currency traders: A monetary policy dove now commands the Prague hawks.

After three further scheduled appointments by Zeman, the Central Bank Council not only has two women on board for the first time, but is also likely to be less "hawkish" overall.

Zeman's mission is clear: "I'm not expecting a sharp cut in interest rates, but I don't think there's any reason for further increases either." The frail head of state let it be known before the last, extraordinarily sharp increase.

For the time being, the dispute in the Bank Council is about how strongly domestic inflation is determined by national or imported factors such as rising energy prices.

Michl is of the opinion that two thirds are imported.

On the other hand, one could hardly do anything with higher interest rates - but with the increase in the cost of credit due to high interest rates, the domestic economy could be completely choked off.