By Leos Rousek (Dow Jones 19.7.2011)
The Czech central bank, or CNB, is likely to revise upward its 2011 economic growth forecast and should end the current lax monetary policy to contain inflationary pressures, Kamil Janacek, a CNB rate setter, said Tuesday.
"I believe there are conditions [for rate rises] and they continue to prevail," Janacek, one of the two outspoken hawks on the seven-person policy board, said in an interview with Dow Jones Newswires, ahead of the bank's Aug. 4 rate-setting meeting.
The Czech central bank has kept its base interest rate at a record low of 0.75% since May 2010. Next month the bank will also release a quarterly revision of its gross domestic product and inflation outlooks.
"This year the economy will grow 2% on the year or even slightly faster than 2%," he said, adding that this can't be labeled "fragile growth."
The bank's current GDP forecast, released in May, sees the Czech economy expanding 1.5% on the year in 2011 and 2.8% in 2012.
Fueled by solid demand for Czech staple exports such as electronics and cars, local manufactures are key growth drivers, Janacek said, adding that some companies suffer from labor shortages in certain professions.
"This of course puts pressures on wage growth," he said.
Due to planned increases in Czech value-added taxes and an expected slowdown in the euro area, "the 2012 [Czech] growth won't be too different from 2011, but we can almost certainly expect an above 3% growth in 2013," Janacek said.
Janacek, who before joining the CNB policy board in 2010 worked as chief economist at the Czech unit of Societe Generale, preaches against unforeseen policy decisions.
"16 years in the commercial banking sector has taught me that we shouldn't be surprising markets," he said, adding that he'd prefer the bank to launch a gradual and predictable policy tightening.
Janacek said he could envision the bank tightening its policy through the end of 2012 so the base rate would "be getting close to levels which correspond to a zero real market rate."
With inflation currently at around 2% on the year and the benchmark three-month Prague Interbank Offered Rate, or PRIBOR, at 0.995%, market interest rates are well in the negative territory.
Stopping short of predicting the exact level of the CNB base rate at the end of next year, Janacek's statements imply there could be room for tightening of about 100 basis points over the next 17 months.
The bank currently forecast consumer price inflation to be at 2.1% in the third quarter of 2012 without taking into account planned sales tax increases.