(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may thus be outdated.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)
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