September 26, 2018 / 3:24 PM / 8 months ago

UPDATE 1-Czech central bank hikes rates again; won't commit to another

* Czech central bank raises main rate to 1.50 percent

* Sixth rate hike since tightening last year began

* Economy, fast-rising wages building inflation pressures

* Crown drops as governor gives no timing commitment on next hike (Updates throughout with bank comments, crown)

By Robert Muller and Jason Hovet

PRAGUE, Sept 26 (Reuters) - The Czech National Bank raised interest rates at a third straight meeting on Wednesday to cope with fast-rising wages and inflationary pressures in a growing economy, but it stopped short of committing itself to another rate increase this year.

The crown hit a two-week low after the bank’s decision and comments, with some investors disappointed it had not sent a stronger signal another rate hike was close.

The Czech central bank has been the most aggressive among European Union policymakers in normalising monetary policy after years of loose measures, including keeping the crown weak in an intervention regime between 2013 and 2017.

The European Central Bank, meanwhile, has kept policy unchanged and is on track to end its bond purchases this year and raise interest rates next autumn. Other central banks in the EU’s eastern wing have also kept rates at record lows.

The seven-member CNB board voted 6-1 on Wednesday to increase the two-week repo rate by 25 basis points to 1.50 percent , the first time in over two decades an increase has come at three consecutive meetings.

With the crown mired in emerging-market woes and providing little aid to policymakers in tightening monetary conditions amid a strong economy, markets have been counting on a further rate hike after this one before the year is out.

Governor Jiri Rusnok, however, told a news conference that while another rate hike was likely, it made little difference if it came in the final two meetings of this year or early in 2019.

“The next step is very likely going to be a hike, but we don’t know exactly when,” Rusnok said.

Rusnok had told Reuters earlier this month two rate increases before the end of the year was a “strong scenario”. He said on Wednesday little had changed since, but that the central bank has not committed itself to one more hike this year.


Forward rate agreements (FRA) retreated slightly on Wednesday but are still pricing in about 50 percent chance the bank will deliver another hike this year.

All 13 analysts in a Reuters poll had expected Wednesday’s increase and a majority forecast one more rise this year.

Since August 2017, the central bank has raised borrowing costs in six steps and has recently moved faster than expected from earlier outlooks, which had been based on a stronger crown helping its policy.

Instead, the crown is 1.5 percent weaker since the start of February. The bank’s current macroeconomic outlook also counts on the crown returning to appreciation, helping with rate stability next year.

The latest economic data have shown growth remains strong and on course to grow at least 3 percent this year.

Wages continue to rise at their fastest pace in 15 years after a real 6.2 percent jump in the second quarter and inflation has been above the bank’s 2 percent target for all but three months since the beginning of 2017. (Reporting by Robert Muller and Jason Hovet, editing by Larry King)

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