Czech PM Babis says interest rate hikes bring no good

Debate in the Czech central bank, which is independent and does not take instruction from politicians, has moved to how fast rates should rise. Asked in parliament during a question-and-answer session what the government could do prevent steep price rises, Babis said inflation was everywhere but outlooks pointed to a slowdown.

The Czech National Bank should refrain from interest rate hikes that can damage companies and people through higher borrowing costs, Prime Minister Andrej Babis said on Thursday, adding inflation should move lower.

The Czech Republic like most other countries has been battling an inflation spike coming largely from global supply bottlenecks amid the coronavirus pandemic and higher energy costs. The effect in central Europe has been compounded by low unemployment putting pressure on wages and strong consumer demand coming out of pandemic restrictions that eased before the summer holiday months.

In June, rising inflation prompted the Czech and Hungarian central banks to become the first in the European Union to begin raising interest rates. Debate in the Czech central bank, which is independent and does not take instruction from politicians, has moved to how fast rates should rise.

Asked in parliament during a question-and-answer session what the government could do prevent steep price rises, Babis said inflation was everywhere but outlooks pointed to a slowdown. "We are not responsible for inflation. We are not setting oil prices, it is not the government's role to deal with inflation, the central bank should do that," Babis said.

"It would be good if (the central bank) did not raise interest rates, because that would not help at all, it would not influence the market, it would only hurt the people and companies," he said. Babis has previously commented on monetary policy.

In March, he said the bank should also keep interest rates low to aid economic recovery after the COVID-19 pandemic. The bank said then it would decide on interest rates according to "its own deliberations". On Thursday, the central bank reiterated its independence.

"The Czech National Bank is an independent institution, whose board and its members, in accordance with the law, must not ask for, nor accept instructions from anybody, including the president, parliament and government," central bank spokeswoman Marketa Fiserova said. The central bank has delivered two 25-basis-point rate increases since June to bring its main two-week repo rate to 0.75%.

Markets are betting there is a chance the central bank could opt for a steeper 50 basis point hike at its next meeting on Sept. 30, which some policymakers have said would be up for debate with inflation accelerating. Headline inflation jumped to over 4% in August, the first time since 2008, while producer price data on Thursday showed growth at a 28-year high.

The Czech Republic's parliamentary election is due on Oct. 8-9, and Babis's ANO party has led in the opinion polls.

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