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Czech economy braced up for hike, says Ratesetter Nidetzky

The Czech National Bank raised its benchmark two-week repo rate by 25 basis points to 0.75 percent in February, its third move since becoming the first monetary authority in the European Union to tighten policy last August.


Reuters 13 Jun 2018, 11:24 AM Czech Republic
  • Markets are positioning for a move by September. Some analysts say recent data would warrant a hike by August and a few that June is not too early. (Image Credit: Wikimedia)

The Czech economy is ready for another interest rate hike as soon as this month as the labour and housing markets start to overheat, rate-setter Tomas Nidetzky said.

The Czech National Bank raised its benchmark two-week repo rate by 25 basis points to 0.75 percent in February, its third move since becoming the first monetary authority in the European Union to tighten policy last August.

The debate over how soon it may lift rates again has intensified this month as the Czech crown sputters, wages rise at their fastest in 15 years and inflation exceeds policymakers' 2 percent target.

"I do not think there is a difference if we (raise rates) now in June, or in August, or that it would matter significantly for the economy," Nidetzky told Reuters in an interview on Tuesday.

"In other cases, I always said: 'Let's wait for figures from the economy and the new outlook.' Today we already have the figures."

The comments are among the most hawkish in the current debate by any member of the central bank's seven-strong board, which next meets on June 27.

The bank updates its economic outlook in August. The current one, built on assumptions an appreciating crown would provide the bulk of monetary tightening in 2018, sees rates rising only at the turn of the year.

But with a tight labour market adding to inflationary pressures, some central bankers have signalled a hike may come this year.

Markets are positioning for a move by September. Some analysts say recent data would warrant a hike by August and a few that June is not too early.

Vice-Governor Mojmir Hampl, the lone vote for a rate increase in May, has also signalled he wants rates to go up quickly, while Governor Jiri Rusnok last week said crown weakness was creating space for a hike, without specifying when.

CROWN SLIPPING

Nidetzky said he did not worry that widening the interest rate differential with the European Central Bank would cause the crown to firm too much, a factor that has made the bank cautious.

The crown, battered by a dollar rally and jitters over Italy since May, is about 2 percent weaker than the central bank assumed in its outlook, stuck at around 25.70 to the euro.

In a Reuters poll last Thursday, analysts forecast only small strengthening in the next three months.

Nidetzky said the crown was only one part of a model, though he would wait for the bank's new economic outlook before commenting on the pace of further tightening after the next hike.

The central bank is contending with an economy set to grow almost 4 percent this year.

Real wages grew 6.6 percent in the first quarter, unemployment is around a two-decade low at 3 percent, and prices of new apartments in Prague are growing in the double digits.

Nidetzky said the economy was moving above equilibrium and the housing and jobs markets were starting to overheat. On Tuesday The central bank moved to tighten mortgage lending rules.


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