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Zamrazilova: rate cut possible if inflation eases as
expected
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Caution warranted to avoid premature policy easing
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Fiscal policy, labor market are the main risks
(Adds quotes, background, graphics)
By Robert Muller
PRAGUE, April 24 (Reuters) - The Czech National Bank can
start cutting interest rates in September if inflation keeps
easing like expected by then, although policy loosening this
year will not be as quick as markets see, Vice-Governor Eva
Zamrazilova told Reuters.
The Czech bank, like others in central Europe, was among the
first globally to jack up interest rates, starting in 2021, and
is now among those expected to begin cutting rates first.
The bank's main interest rate has remained at
7.00% since mid-2022, following 675 basis points of hikes in a
year-long tightening cycle.
Markets expect easing to begin within the next six months
and price in around 100 basis points in cuts by the start of
2024.
Inflation slowed to a rate of 15.0% in March, and the
central bank forecasts a return to single digits in the second
half of this year. Zamrazilova and others on the seven-seat
board have said they would consider rate cuts only once
inflation returned to single-digits and clearly headed towards a
target band of 1-3%.
"September will be richer with data, so if it goes in the
right direction, and I will be certain enough that it will
continue in the following months, then (a rate cut) is
possible," Zamrazilova said in an interview on Monday.
The bank meets next on May 3, with analysts expecting it to
keep rates steady.
Zamrazilova said she did not see rate cuts as deep as seen
by markets this year as it would imply starting in August.
"Inflation would have to be really favourable, meaning
coming down faster than we expect" she said. "I would be glad.
Nobody wants interest rates unnecessarily high, but we can't
make the mistake of starting to ease rates prematurely."
Zamrazilova said rates would stay above levels of the past
decade. She also said the crown, which touched a 15-year high
this month, was helping to tighten policy.
Even though major central banks, such as the European
Central Bank were tightening policy, and narrowing the interest
rate differential between Czech and euro zone markets, this did
not warrant a rate hike now, she said.
"The (crown) channel is working optimally now," she said.
But Zamrazilova also saw inflationary risks stemming from
fiscal policy and a tight labour market boasting the lowest
unemployment in the European Union. The Czech central bank
forecasts a pickup in nominal wage growth to 8.5% this year,
almost even with average inflation and Zamrazilowa described
current wage growth as "borderline".
"If there is still 200 billion crowns ($9.38 billion) more
in the economy than there should be, that is an inflationary
risk, same as some companies, especially large, export-oriented
ones, increasing wages by 10% or more," she said.
** Click here for an interactive graphic:
($1 = 21.3150 Czech crowns) <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Czech rate pricing Czech inflation passing its peak Czech inflation passing its peak ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Robert Muller, editing by Jason Hovet and Tomasz Janowski)
robert.muller.thomsonreuters.com@reuters.net))