Czechs Say Rate Hikes Aren’t Over After Another Surprise Move
(Bloomberg) -- The Czech Republic surprised with another larger-than-expected interest-rate increase and the central bank said its aggressive campaign to rein in spiraling inflation is far from over.
The bank lifted the benchmark rate by a full percentage point to 3.75% on Wednesday, more than the median estimate in a Bloomberg survey for a 75 basis-point increase. The move brings cumulative hikes to 3.5 percentage points since June and follows a shocking 1.25 percentage-point increase last month.
Governor Jiri Rusnok said the “forceful” increase will bring price growth toward the 2% goal within the next 12 to 18 months, and help anchor inflation expectations. He said the main rate is “more than likely to reach or exceed” 4% at the next meeting in February.
“It’s clear that in the current situation, when we’re facing an extraordinary combination of very strong inflation pressures, we will have to move markedly above 4%,” Rusnok said. He added that he couldn’t predict how much above that level rates will need to rise.
The koruna gained 0.5% to 25.09 against the euro, the strongest level since February 2020.
Inflation accelerated to 6% in November, the highest in 13 years, while factory-gate prices rose at the quickest pace in three decades. The bank is worried about rapid price growth triggering bigger wage demands -- the Czech Republic has the lowest jobless rate in the EU -- which would entrench high inflation for longer.
Czech policy makers were among the world’s first to challenge the view that inflation was transitory, even as they acknowledged that some global drivers, like snarled supply chains and higher commodity prices, will ease over time.
Along with Hungary, the Czechs were the EU’s front-runners in raising borrowing costs in June. Since then, they have tried to tackle home-grown pressures fueled by a severe labor shortage and spiraling property prices.
Rusnok said the bank’s next forecast, which will be unveiled in February, will again show a higher outlook for price growth.
“Inflation expectations of households and companies have been confronted with a significant overshooting of the inflation goal for some time already,” Rusnok said. “That’s why the bank is ready to continue raising rates next year to secure price stability.”
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