Interview of Vojtěch Benda, Bank Board member
By Robert Müller (Reuters 25. 1. 2022)
The Czech National Bank may raise its main interest rate by more than 50 basis points at its next policy meeting on Feb. 3, board member Vojtech Benda said on Tuesday, but would not likely need to go above 5% this year in its tightening cycle.
The Czech central bank is on the verge of raising interest rates to a 20-year high if it hikes as expected next month as part of a battle to quell surging inflation. Others in central Europe have also turned to rate hikes.
The Czech two-week repo rate has risen to 3.75% from 0.25% last June, including a combined 300 basis points in hikes between September and December.
"I think that there is room (on Feb. 3) for a hike bigger than 50 basis points," Benda told Reuters in an interview.
"Unless further inflationary pressures appear, which we don't know about at the moment, then I assume that rates should not surpass 5%."
Benda was the most hawkish board member at the start of the current tightening cycle, but his view that rates should peak at or below 5% matched an outlook flagged by Governor Jiri Rusnok and other board members.
"It is best to do it as fast as possible, meaning this will be a key meeting, where a relatively big hike can be expected, and the following ones will be for fine-tuning," he said.
Czech headline inflation accelerated to 6.6% year-on-year in December, the highest since September 2008.
Benda said inflation should peak "just below" 10%, in line with the central bank's updated outlook.
With inflation expected thereafter to slow, Benda said the board could start debating rate cuts in the second half of the year, if inflation abates as expected.
"When we see that we have managed to stabilise inflationary expectations, and inflation is safely returning to our target band on the one-year horizon, then we could start turning the helm in the other direction," he said.
Central Europe is facing external price pressures as well as hot labour markets driving up wages and supporting consumer demand.
On Tuesday, Hungary's central bank delivered its biggest hike since 2011.
Czech inflation has been largely imported through energy prices and supply chain problems, which critics say cannot be affected by domestic policies. But the central bank has argued a significant part of the pressures are domestic.
Companies' efforts to pass on the burden of elevated costs may be a coming factor in price growth too.
Benda said that although firms have some scope to pass on their costs in higher prices, the bank has been able to significantly tame demand-led inflationary pressures with policy tightening.
He said the firming of the crown's exchange rate - by 1.5% this year - was also delivering part of the tightening.