PRAGUE – The Czech government running higher state budget deficits would hamper the central bank’s efforts to tame inflation, Governor Ales Michl wrote on Monday.

The Czech government plans to run the state budget with a deficit of at least 330 billion crowns this year, well above an original plan of 270 billion crowns as the cost of measures to tame the impact of soaring energy prices builds.

For 2023, the government has approved a budget draft with a deficit of 295 billion crowns, above a previously debated target of 270 billion crowns.

“If the state budget deficit will really get significantly higher than planned this year and next, due to price caps on energy prices, that would make our fight against inflation harder,” Michl said in his weekly column in national daily Mlada Fronta Dnes.

The central bank has kept its main rate unchanged at 7.0% in August and September under a revamped board led by Michl, who had voted against rate hikes since June, 2021 which totalled 675 basis points.

Inflation is sitting at above 17%.

The centre-right government is counting on revenue from windfall taxes on banks and energy firms to keep the deficit in check next year as it seeks to keep pledges of budget consolidation.

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