November 20, 2017 / 12:19 PM / a year ago

UPDATE 1-Czech central bank chief says 50 pct chance of Dec rate hike, we are in no rush

(Adds governor’s quotes, background, crown reaction)

By Francois Murphy

VIENNA, Nov 20 (Reuters) - There is a 50 percent chance the Czech central bank will raise interest rates again in December after hikes in August and November, though it is in no rush to tighten policy, the bank’s Governor Jiri Rusnok said on Monday.

Rusnok said any move would likely be by 25 basis points, the same as the last hike on Nov. 2 which brought the main repo rate to 0.5 percent.

Asked on the sidelines of a conference in Vienna about the chances for a hike at the Dec. 21 meeting, he said it was 50/50.

“We are not in a hurry, it is not urgent, so we can consider all the tactical things as well, but definitely we are on track,” he told Reuters.

“In my opinion it is not so important if we will do it in our next meeting or after the next meeting in February. In this respect I do not see a big difference but we will have a discussion on the board. You know, there are seven guys, so we will see.”

Czech economic growth jumped by 5 percent year-on-year in the third quarter and unemployment is at its lowest in two decades, which argues in favour of tightening policy.

One argument against making such a move is the continuing ultra-loose monetary policy of the European Central Bank.

The crown edged up to 25.56 to the euro after Rusnok’s comments, from 25.58 earlier.


Most analysts expect the bank to pause its hiking path at the Dec. 21 meeting and predict the next hike will come early next year, possibly at the next meeting on Feb. 1, when the its board will discuss a quarterly update to a staff economic forecast.

Rusnok played down suggestions that the Czech economy was overheating.

“Technically, yes, we are slightly overheating but you know on the other hand basically we do not see any booming bubbles or any other kind of unbalanced things in respective indicators, so in this respect we are definitely not in an urgent situation,” said Rusnok, speaking English.

The bank’s latest forecast from this month pencils in only one more hike over the next year - less than the market is thinking.

But the bank’s board also said after this month’s meeting it saw upside inflation risks from the domestic economy and from large positions in the crown built by investors that could slow down the firming of the crown’s exchange rate.

That could make room for more interest rate hikes on the bank’s long path toward levels the board sees as normal - about 1 percentage point above inflation, which the bank targets at 2 percent. (Writing by Jan Lopatka; Editing by Gareth Jones)

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