Česká národní banka

Czech central bank's Hampl may raise hand for September rate hike

By Robert Müller (Reuters 29. 8. 2017)

  • Vice governor: tightening debate relevant at any future meeting
  • Hampl's stance more hawkish than bank staff forecast
  • Hampl: Czech economy doing well, slightly above potential

The Czech central bank may debate tightening monetary policy at any upcoming policy meeting, Vice-Governor Mojmir Hampl said in an interview, and he might vote to raise interest rates as early as the next meeting, in September.

The Czech National Bank (CNB) raised rates from near zero on Aug. 3, its first increase and the first by a European Union central bank since 2008.

At the same time, though, the bank's staff forecast and Governor Jiri Rusnok downplayed the prospects for further tightening, making Hampl's views clearly hawkish in comparison.

Hampl attributed his view to the latest data, which he said confirmed his intuition that economic growth was faster than previously thought.

"The development is good, and of course there is a big question therefore of how fast to proceed with tightening of monetary conditions," Hampl told Reuters on Tuesday. "At any meeting now, it will be relevant to debate further tightening."

Gross domestic product grew 2.3 percent in the second quarter, beating all forecasts with the fastest quarterly growth on record and putting annual growth at 4.5 percent.

Hampl said, in fact, he saw a possibility of voting for a rate hike at the Sept. 27 policy meeting.

"I would not rule it out at all," he said. "It seems possible to me that another moment may come at the next session."

Hampl did not attend the August meeting but said he would have supported the board's unanimous decision to raise the main repo rate by 20 basis points to 0.25 percent.

In July, inflation accelerated to 2.5 percent year-on-year. The central bank expects it to overshoot the bank's 2 percent target for several more months, then drop to 1.9 percent in the third quarter of 2018.

The bank's forecast anticipates just two more rate increases by the end of 2018. The board said rate moves would be limited by loose European Central Bank policy.

Hampl said ECB moves must be taken into consideration, but euro zone developments were perhaps less relevant than they had been.


In April, the central bank dropped its policy of keeping the crown's exchange rate on the weak side of 27 per euro, allowing the currency to strengthen in the first stage of policy normalisation.

The crown has since gained 3.2 percent, but billions of euros worth of crown positions still held by investors waiting for exit have clouded the exchange rate outlook.

Hampl said trading restraints may limit the currency's sensitivity to rate increases now.

"It seems that in a number of countries in the developed world, a number of classic economic ideas on trades which can be made does not apply thanks to limits on counterparty, risk management systems, capital requirements and so on," Hampl said.

"In other words, I would worry less about what using the interest rates does implicitly with the exchange rate than in other times. I think the reality is different today compared to the times before the financial crisis."

Hampl played down a possible impact on the crown of an unusual number of treasury bills maturing in September – a total of 196 billion Czech crowns worth ($46.03 million).

The short-term instruments have been used by investors to park long-crown positions. Analysts have said redemptions would give investors cash, which some may prefer to sell rather than try to reinvest at negative short-term market rates.

"It is a factor which creates uncertainty regarding future development," Hampl said. "On the other hand, if the uncertainty was really big for market players, we would see that in the implied market rates – and there is nothing dramatic going on there."