By Kryštof Chamonikolas (Bloomberg 24. 7.)
The weaker-than-expected koruna and robust wage growth may prompt the Czech National Bank to debate a second consecutive increase in borrowing costs next week, according to board member Vojtech Benda.
Central bankers in Prague, who lifted interest rates at their last meeting in June for the fourth time in less than a year to cool an overheating economy, are scheduled to reconvene armed with fresh staff forecasts. Czech salaries have been rising faster than productivity and they may have a more pronounced and persistent impact on consumer prices than the monetary authority projected in May, Benda said in an interview on Monday.
“All that means the domestic inflationary pressures are stronger compared with the previous forecast,” he said. “I can generally see room for debate on a further rate hike as soon as at the next meeting. I personally favor tighter rather than more relaxed policy.”
After being at the forefront of monetary tightening in Europe, the Czech central bank is preparing more rate increases to cap an inflation that’s being fueled by a deepening shortage of workers and the fastest real wage growth in 15 years. While policy makers originally expected most of the cooling effect in 2018 to come from koruna appreciation, the currency has instead weakened along with other emerging-market peers after sentiment toward riskier assets soured.
“The weaker-than-expected koruna represents an opportunity to continue with rate hikes, which are desirable for both our monetary-policy and financial-stability goals,” Benda said. “We’re in a comfortable situation in which we can decide at every policy meeting, based on a real-time assessment of the exchange-rate.”
The June 27 hike, which brought the benchmark rate to 1 percent, has failed to trigger koruna appreciation. The currency has averaged 25.93 per euro so far in July, 4.4 percent weaker than the central bank’s third-quarter projection of 24.8. The exchange rate stood at 25.87 on Monday as of 3:50 p.m. in Prague.
Earlier on Monday, fellow board member Mojmir Hampl said in an interview with Euro magazine that the central bank needs to keep raising interest rates because wage growth and rising property prices will fuel inflation.