LONE HAWK?
Holub and Michl are the only members left since the
reshuffle. One new board member, Jan Kubicek, who joined the
board last month, was quoted this week as saying current rate
settings should be enough to tame inflation.
The bank has relied in recent months on a strengthening
crown, which rose to a nearly 15-year high in this month, and is
helping the inflation fight, according to Holub.
Central bankers, though, have not completely taken a hike
off the table, wary of renewed demand pressures if wages pick up
in what is still the European Union's tightest labour market.
Holub said wage growth in industry and construction in
January, at 12% and 15%, respectively, was a worrying sign.
"Those numbers feed the doubts a bit (about inflation
slowing as forecast)," he said.
"I think my argument that a further increase in rates would
make sense as an insurance against unanchored inflation
expectations and excessive wage developments is still valid," he
said.
Rate cuts, he said, could be debated by the end of this
year, when inflation is expected to drop to single-digit levels,
conditional on some degree of certainty that it was falling back
to target.
"Otherwise, it would be necessary to hold rates at the
current, or possibly even slightly higher, level for a longer
period of time," Holub said.
** Click here for an interactive graphic:
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Czech wages hit by inflation, but pressures appear Czech wages hit by inflation, but pressures appear Czech inflation ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Robert Muller, writing by Jason Hovet, editing by
Susan Fenton)
PRAGUE, March 10 (Reuters) - Another Czech interest rate
hike is needed to safeguard inflation's return to target,
hawkish central bank policymaker Tomas Holub said on Friday,
while admitting arguments for tightening could soon fade.
Holub has been in the minority on the Czech National Bank's
seven-member board since mid-2022, seeking stronger policy
tightening to curb inflation running at a three-decade high
while the majority has preferred stability to let past rate
hikes do their work.
The 48-year-old economist told Reuters in an interview that
he would still support a rate hike when the bank meets at the
end of March.
While inflation could fall quickly this year, he said he
worried about it getting stuck above target next year and that
some wage growth concerns were already appearing.
"A signal to the public that the central bank is really
serious about fighting inflation and is ready to use its main
tool, which are interest rates, would be important," Holub said.
A debate on eventual rate cuts - which markets are pricing
in by the end of the year - can start once it was certain the
path back to the 2% inflation target was clear, he said.
Data on Friday showed the Czech headline inflation rate
eased in February to 16.7% year-on-year, from 17.5% in January,
likely signalling the start of a slow retreat.
Holub said he expected inflation would drop to single digits
in the second half of this year, but could get stuck around 4-5%
in the first half of 2024.
However, he said the bank's outlook sees inflation close to
target around mid-2024, when any hike delivered after March
would start to have an impact given the bank's 12-18 month
policy horizon. That could mean the bank was soon passing the
optimal time to tighten.
High inflation has crushed consumer demand as people's
paychecks shrink. Real wages fell 7.5% in 2022, and the Czech
economy slipped into a technical recession in the fourth
quarter.
The central bank raised its key interest rate between June
2021 and June 2022 from 0.25% to 7.0%, but new Governor Ales
Michl has advocated stable rates to anchor the economy since
taking the helm in July last year as part of a board revamp.
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