A senior Czech central bank official has resigned unexpectedly, as much-criticised Governor Aleš Michl continues to consolidate his leadership of the regulator.

Petr Král, head of the monetary department at the Czech National Bank (CNB), quit on January 6, and will leave a post he has held since 2018 by the end of January.  Král has worked at the CNB for 25 years and was seen as one of the architects of the bank's traditional hawkish monetary policy.

In a brief press release, the CNB did not give any reasons for Král‘s departure and only stated that “the bank board has acknowledged this decision” and that the department “will be headed by its Deputy Executive Director Jakub Matějů until a new executive director is appointed”. The monetary department prepares forecasts for the bank board and issues recommendations on monetary policy.

Michl, a former advisor to populist billionaire politician Andrej Babis, drew criticism over his qualifications for the job when he was nominated by then president Milos Zeman, an ally of Babis, to take over as governor of the well regarded central bank in July 2022. 

As a central bank board member from 2018 he had publicly criticised the CNB's traditional hawkish stance on interest rates, as well as its then policy of interventions in the currency market to depress the value of the Czech crown. As governor he has tried to pursue a more doveish policy, assisted by Zeman's replacement of board members during his two terms, which ended in March 2023.

Czech media pointed out that Král’s departure comes shortly after the mandate of board member Tomáš Holub expired; he is now the country’s Deputy Minister of Finance. Holub is another stalwart of the CNB and together with Král the pair were leading figures behind CNB’s hawkish monetary policy over the past two decades.

Critics say Michl often tries too hard to push the rest of the board towards his views without having the economic expertise to convince them; luckily, he is now surrounded by board members and officials who share his views.

After Michl became governor in the summer of 2022 the board resisted pressure for further rate rises and kept them unchanged at 7% until December 2023, when – after criticism for reacting too late to falling inflation – the bank began a policy of gradual loosening. Rates were last cut to 4% in November, but the Czech economy remains sluggish, with GDP rising just 1.4% y/y in 3Q2024.

Czech business daily Hospodářské noviny (HN) speculated that Král’s departure was likely linked to three external reviews of the department's analytical and modelling framework that had been commissioned  “which were not positive”,  adding that Král has been at odds with  Michl for some time.

The review was the first of its kind, the CNB stated in October, and was commissioned in response to the COVID-19 crisis and the subsequent energy crisis, which "led many inflation-targeting central banks to consider making changes to the conduct of monetary policy".

In a separate development, Michl made headlines in the Czech media last week after he said that adopting the euro currency “is no salvation” to the crawling progress in the country's economic convergence with Western European states. In this Michl is following longstanding CNB policy, as the central bank has traditionally been cool about euro adoption, which would clip its monetary policymaking wings. 

Michl’s comments came in response to the New Year’s address of liberal President Petr Pavel, who stated that the adoption of the euro would bring Czechia closer to German wages, reinvigorating the discussion set off by comments of Prime Minister Petr Fiala, who was ridiculed for claiming in November that if his government wins another term at this autumn's elections he would be able to bring Czech wages level with German ones.

Czechia committed itself to euro adoption when joining the EU in 2004 but several successive governments have failed to take active steps towards changing the currency from the koruna (CZK).  The issue has also been picked up by Eurosceptic and populist politicians such as Babis, who defend the continued use of koruna.

There are diverging views on the euro adoption even inside the SPOLU joint list of the three ruling coalition parties – while the centre-right but pro-EU TOP 09 and Christian Democratic KDU-CSL back euro adoption, the Eurosceptic wing inside Fiala’s neoliberal ODS is against it. In the previous election campaign in 2021, SPOLU avoided the issue and Fiala's government agreed not to pursue membership during its term.

“It is clear that standing by on the issue of euro does not help anyone,” KDU-ČSL Chairman Marek Výborný was quoted as saying by online news outlet Seznam Zprávy (SZ) this week.

SZ noted that its survey last year showed that 82% of SPOLU voters want Czechia to adopt the euro in the next ten years. On the other hand, the electorate of opposition and nationalist parties is largely against it, including 57% of supporters of Babis' dominant populist ANO party, 76% of the far-right SPD's, and 72% of voters of the brown-red  STAČILO! list led by the Czech Communist Party.