PRAGUE, April 13 (Reuters) - The Czech National Bank
(CNB) should not cut interest rates until inflation is clearly
lower as rates need to stay higher for longer to slow price
growth, central bank board member Jan Prochazka was quoted as
saying.
CNB warned on March 29 that the market was prematurely
pricing in rate cuts, pointing out strong January industrial
wage data. Governor Ales Michl said then that a rate hike could
still be on the cards in May if the risk increased of a
wage-price spiral.
The central bank has held its main interest rate at 7.00% since June 2022 after it had raised it by
675 basis points over a year-long tightening cycle.
"Until we see strong enough signs that inflation is falling,
rates will not go down either," Prochazka said in an interview
published by the Ekonom weekly magazine on Thursday.
"We need to keep rates at higher levels for a long time and
not ease too soon. Then we can cool the economy," he said.
Rate-setters across central Europe have doubled down on
their hawkish policy messages in the past two weeks.
Although Czech inflation eased to 16.7% in February, it is
still far above the central bank's 2% target. The bank sees the
annual pace slowing to single-digit levels in the second half of
the year, and easing to its target in 2024. March inflation data
is due later on Thursday.
The central bank has also been closely watching wages as
some central bankers have identified rapid wage growth as a
potential trigger for further policy tightening.
Prochazka also supported that view. He said he considers
labour market overheating, and fiscal policy as two domestic
risks for the inflation outlook. Internationally, major central
banks could pose a threat via policy tightening, putting
pressure on the crown.
"If it turns out that the labour market is overheated, and
ECB policy and the Fed's policy will be activist ... the rates
would have to go up, perhaps already at the next meeting (on May
3)," Prochazka said, reiterating his view at the bank's March 29
meeting.
(Reporting by Robert Muller. Editing by Jane Merriman)
robert.muller.thomsonreuters.com@reuters.net))
