The weakening crown coupled with robust wage growth could lead Czech central bankers to consider the first back-to-back increase in interest rates in over a decade at their next policy-setting meeting, the Bloomberg news agency reported on Tuesday, citing interviews with two board members keen to cool the overheating economy.
Tomáš Holub, head of the central bank’s monetary department, told Reuters in an interview the same day that the new quarterly forecast will pencil in more expected tightening, raising the prospect of several rate hikes in the coming year due to a weaker Czech currency and greater inflationary pressure from the domestic economy.
“I cannot, this close ahead of the bank board meeting, say unequivocally yes or no, but this idea (of a successive rate hike) is not entirely out of the ballpark,” Holub said.
According to an OECD report released last week, the Czech economy is expected to grow by 3.8 per cent this year, mainly driven by strong demand stemming from rising salaries and export growth. Czech wages are rising faster than in most neighbouring countries, having risen by 8.6 per cent in the first quarter to 30,265 crowns.
But labour productivity has not kept pace with rising salaries, which could have a stronger impact on inflation than the Czech National Bank has previously forecast, board member Vojtěch Benda said in an interview with Bloomberg on Tuesday.
“All that means the domestic inflationary pressures are stronger compared with the previous forecast,” Benda said. “I can generally see room for debate on a further rate hike as soon as at the next meeting (on August 2). I personally favour tighter rather than more relaxed policy.”
Bank deputy governor Mojmír Hampl told Euro magazine earlier that rising property prices are another reason to continue raising borrowing costs this year, the news agency noted.
The central bank board on June 27 voted to increase the two-week repo rate by 25 basis points to 1% to tame inflation, which jumped to 2.6 per cent last month. It was the third rate hike in under a year, as the country’s economy continues to accelerate and record-low unemployment pushes up wages.
Meanwhile, economic confidence weakened in July to the lowest level in nearly a year, a survey by the Czech Statistical Office showed on Tuesday. The economic sentiment indicator has dropped from 15.7 in June to 14.2 – the lowest score since August 2017, when it stood at 14.1.
The consumer confidence index fell to a seven-month low of 9.3 in July from 10.5 the previous month. Czech consumers are more afraid that the overall economic situation will decline over the coming 12 months than they are about their own financial standing worsening, the survey showed.
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