UPDATE 1-Czech central banker defies critics, says policy tight when looking forward

(Adds details, background) PRAGUE, Feb 20 (Reuters) - Overall Czech monetary conditions are quite restrictive given the crown has strengthened in recent months, but a tight labour market remains a pro-inflationary risk, central bank Vice-Governor Jan Frait said in a commentary published on Monday. Frait defended the bank's flat-rate policy in the face of soaring prices, saying interest rates were high enough and among the highest in the world in real terms when looking a year ahead. "In this situation, the decision on whether to tighten monetary policy further must – metaphorically speaking – be carefully weighed up on an apothecary’s scales," Frait wrote in a co-authored piece with central bank adviser Jakub Mateju on the bank's website. The bank, under a revamped board with Frait, new Governor Ales Michl and other new members since last July, halted the previous board's year-long drive that took the main repo rate from 0.25% to 7.00%. This was despite the bank's staff forecasts that have assumed the board would raise the rate further in the short term to get inflation to the 2% target a year to two ahead. Private sector economists have criticised the new board for not following the forecast, and also for temporarily extending its standard 12-18 months policy horizon to get inflation back to target, saying this may entrench inflation expectations and bring unnecessary costs. Frait said in the blog post that current inflation, at 17.5% in January, was water under the bridge and he favoured looking at inflation a year ahead. Frait said there was not much additional inflation to come from February onwards, according to the bank's experts. "From this perspective, ex ante real interest rates are already strongly positive, reaching 4.7%. In other words, monetary policy rates now exceed the rate of expected price growth in the near future," he said. He said that future real interest rates were in lower but still positive territory when looking at financial markets analysts' forecasts. They remained negative taking into account companies' inflation expectations, he said, but noted those were last measured before January's 6% month-on-month price increase and may thus be outdated. Frait said that from a forward-looking perspective, Czech rates were among the highest in OECD countries. "In terms of this notional measurement of monetary policy tightness, the Czech Republic is right after Hungary," he said. "This is followed by Poland, and only then by the USA, whose central bank, the Fed, is currently held up as the model for a hawkish approach." Frait, like Michl, has said rates would, however, remain relatively high for longer, following years of overly loose policy home and abroad in the past decade. (Reporting by Jan Lopatka and Jason Hovet; Editing by Christina Fincher)