They then backed a motion to raise rates by 25 basis points to find a consensus, joining board member Jan Prochazka. The bank has kept rates at more than two-decade highs since the middle of 2022, following a sharp one-year hiking cycle to battle inflation that has been at a double-digit rate since early last year. Board members agreed that an interest rate cut was not on the horizon, according to the minutes of the May 3 meeting. In the discussion, Kubelkova and Prochazka had "pointed to the resilience of the economy and the labour market, the fact that they had cooled only slightly in recent months, and the current recovery in sentiment, which could complicate a return to the 2% inflation target." The minutes said Vice-Governor Jan Frait also saw inflationary risks from the economy, which he saw as getting to a similar situation seen in 2016 and 2017 when pessimism was ending, the labour market was overheated and corporate profits were strong. Vice-Governor Eva Zamrazilova also "viewed" the labour market as overheated but considered the overall signals from the economy to be mixed given a negative output gap. The Czech Republic has the European Union's lowest unemployment rate, and despite high inflation hitting real wages, nominal pay growth is showing signs of picking up. The minutes said the main inflation risk going forward for Governor Ales Michl was now fiscal policy.
The Czech government unveiled plans on Thursday to cut subsidies and lift taxes to get the fiscal gap below 2% of gross domestic product in 2024. (Reporting by Jason Hovet Editing by Christina Fincher and Toby Chopra)
