Česká národní banka

CNB > Media service > Interviews, articles > 2018 > 18-01-19

Czech Rate Setter Nidetzky Says Two Hikes May Suffice This Year

By Peter Laca (Bloomberg 19. 1. 2018)

The Czech economy might not need more than two interest-rate hikes this year, as outlined in the central bank’s forecast, if the economy continues to develop in line with policy makers’ expectations, board member Tomas Nidetzky said.

The Czech National Bank has made it clear it will continue tightening, but the important thing is to properly time raising the benchmark, Nidetzky said. The 47-year-old rate setter said he’ll decide how to vote on Feb. 1 after he’s reviewed the fresh staff forecast that he and his colleagues will see at that meeting. The main rate now stands at 0.5 percent.

“The new forecast will reflect the latest developments, but I don’t think there will be dramatic differences from the current forecast,” Nidetzky said in an interview Wednesday. “So I think it may again confirm that there should be at least two hikes this year.”

After becoming Europe’s first central bank to raise the cost of money last year, policy makers are debating further steps to cool one of the European Union’s fastest-growing economies. A labor shortage is pushing wages higher and boosting consumption, which is helping keep inflation above the official target. Rate setters paused tightening in December when only two out of seven board members backed a 25 basis-point hike. Nidetzky was among the majority that opted for keeping rates unchanged last month, saying the economy had been developing in line with the bank’s expectations.

“When we raised rates in November, we already knew there would be a debate in December whether to raise again,” said Nidetzky. “But since the risks to the forecast were insignificant, we decided to wait for a new prognosis in February.”

In contrast, some policy makers have warned about the risk of more pronounced inflation pressures lurking in the economy. Vojtech Benda, one of the two who voted for a hike in December, said this week that a “slightly faster” pace of rate increases is warranted than what’s outlined in the current forecast. One of the key elements in monetary-policy deliberations is the koruna’s exchange rate, which delivered part of the tightening last year when it was the world’s best performer among major currencies. It’s gained 0.6 percent this year to trade at 25.34 against the euro as of 9:40 a.m. in Prague on Friday.

The central bank will resume publishing its projection of the koruna’s path as part of the February forecast, which, according to Nidetzky, will provide further insight into “what the mix of policy tools” should be.

“It’s possible that there will be more hikes in the end,” said Nidetzky. “But it would be unrealistic to expect that we will raise rates at every one of the eight meetings, and it would be unrealistic to expect that there will be fewer rate increases than two. We don’t want to surprise the market.”