(Adds quotes, details, housing market comment)
By Robert Muller
PRAGUE May 17 The Czech central bank could
return to a normal monetary policy in the second half of the
year by raising interest rates from near zero, board member
Tomas Nidetzky said on Wednesday.
The central bank abandoned a longstanding cap on the crown
currency's exchange rate on April 6, calling it the first step
toward tightening monetary conditions.
Nidetzky said policy tightening would be determined by data
and not time and said also it was clear rate rises would be
"It is possible in the second half (to start a return to
normal policy)," Nidetzky told Reuters on the sidelines of a
parliamentary budget committee meeting.
"The economy is doing well, we will see how inflation
develops, we will see if successful developments, including the
exchange rate, continue. If the conditions are in place... we
will start to return to standard monetary policy.
"Standard policy means raising interest rates."
He noted the bank's latest staff forecast expects rates
rising toward the end of the year, which he said was possible,
depending on the development of macroeconomic indicators.
Nidetzky said that the recent deviation of gross domestic
product and inflation data from the bank's forecasts would not
impact its view, and the bank would wait for more data.
The economy expanded by 1.3 percent quarter-on-quarter in
the first three months of the year, above market and central
bank forecasts, preliminary data showed on Tuesday. April
inflation dropped to 2.0 percent, below expectations.
The crown has been slow to firm since the end of the
currency cap, trading on Wednesday at 26.48 to the euro, just
above the former cap level of 27.
Analysts mostly see rate hikes coming in the first half of
2018 but point to the exchange rate development as a risk
because of an overhang of long crown positions still in the
The bank has said a weaker-than-expected exchange rate in
the longer term would add to the need to tighten policy through
With solid economic growth, unemployment the lowest in the
European Union and still low interest rates, the Czech housing
market remains hot, with prices continuing to rise even after
the central bank introduced stricter lending conditions.
Nidetzky said the bank would like to cool the market but
said its problems stem mainly from tight supply.
(Writing by Jason Hovet)