By Robert Muller
PRAGUE (Reuters) – Czech central banker Tomas Holub has said he will likely support a 50 basis point rate hike at the next policy meeting on September 30, adding to signals that the central bank may make its biggest hike since 1997 next week.
Speaking to Reuters in an interview on Monday, Holub adopted a broadly hawkish tone, also saying the debate over whether to drop 25 or 50 basis points could be repeated in November. The central bank last raised its key rate by more than 25 basis points in December 1997.
The Czech National Bank raised its main two-week repo rate by 25 basis points in June, then an additional 25 basis points in August, bringing the rate to 0.75%.
Holub said monetary tightening is likely to continue until 2022, a view bolstered by the sharp rise in inflation last month and signs of further price pressures to come.
Central Europe is grappling with stronger inflationary pressures than some other European countries. The region’s economies have faced tight labor markets and strong post-pandemic demand, as well as external factors such as rising energy costs and global supply shortages.
Holub said he had already considered voting for a 50 basis point hike last month and would likely support a bigger decision at the September meeting, noting that inflation has far exceeded expectations for the central bank in July and August.
“For me, this visibly leaned not only towards the need to continue rate hikes at each subsequent meeting, but also towards the need to insert a stronger step,” Holub said.
“It is very likely that I am already looking into it now, in September,” he said.
Headline inflation accelerated to 4.1% year-on-year in August, its highest since 2008. It was also one percentage point higher than the central bank forecast and doubled its official target of 2%.
Producer prices (PPI) rose 9.3% year-on-year in August, the fastest growth since April 1993.
A board member had voted for a 50 basis point hike in the last two meetings and at least two others signaled their openness to a 50 basis point hike.
Holub said he expected debate on the size of a hike to continue at the November meeting, adding that he was “open” to the possibility of another 50 point increase. base at that time.
“If the news (staff forecast expected in November) shows the need to go one step further, then I will certainly be open to such a debate,” said Holub.
“Rates are still nominally low, and even lower in real terms, so from my perspective even the debate at the November meeting can probably be over a quarter or a half (percentage point movement)” , did he declare.
Several central banks around the world have embarked on a path of monetary tightening as their economies rebounded from the COVID-19 pandemic, including those in Hungary, Iceland or South Korea. A Reuters poll showed the Norwegian central bank would likely join that camp with a rate hike on September 23.
Financial markets expect the Czech repo rate to rise by around 100 basis points by the end of the year, according to the futures contracts. Holub said such bets were “not irrational”.
“I think the market has fundamentally understood the situation,” he said.
Three more political meetings are planned this year, including the one to take place on September 30.
(Reporting by Robert Muller; Editing by Ana Nicolaci da Costa)