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Czech interest rates should stay higher for longer, Kubelkova says

Czech interest rates should stay higher for longer, Kubelkova says
Czech interest rates should stay higher for longer, Kubelkova says Copyright Thomson Reuters 2023
Copyright Thomson Reuters 2023
By Reuters
Published on Updated
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PRAGUE - Keeping the Czech National Bank's interest rates higher for a longer period would work better against inflation than implementing further hikes only to reverse them soon after, central bank board member Karina Kubelkova said.

The central bank has consistently voted 5-2 to keep interest rates steady since it last lifted its main rate to 7.00% last June, which capped an entire year of hikes totalling 675 basis points.

Since joining the central bank last July, Kubelkova has been part of the majority in favour of stable rates.

"Especially in the current situation, holding rates higher for a longer time is a strategy that works better (than raising rates further and then cutting them)," Kubelkova said in an interview published on Monday by daily paper Hospodarske Noviny.

"The transmission into the real economy will be bigger than moving the (main) rate higher and back over a short time," she said.

Kubelkova's view mirrors that of her fellow board members Jan Frait and Vice-Governor Eva Zamrazilova, who voiced support for rate stability in comments last week.

Analysts see rates staying stable for the first half of 2023 before the bank begins lowering borrowing costs.

Czech inflation unexpectedly slowed in December, helped by a year-end drop in fuel prices.

Data for January, when a jump is expected mainly due to new energy contracts for households, is set to come out after the central bank's next policy meeting on Feb. 2. Central bankers are also watching out for companies' repricing activities to start the year.

Kubelkova said that although firms were expecting inflation to be far above the central bank's 2% target in coming years, their wage plans don't fully match that inflation outlook.

"The latest data shows that inflation expectations are stabilised and there is no deterioration," Kubelkova said.

"Personally, I don't think that a symbolic hike, say by a quarter of a percentage point, would cause any change in the view on where inflation will be three years from now," she said.

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