Record March retail sales could stir Czech cbank

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Czech retail sales hit an unexpected record in March, data showed on Monday, adding to expectations the central bank (CNB) may soon tighten policy to ward off building inflationary pressures.

The statistical bureau reported sales growth quickened to 10.5 percent year-on-year in March, beating market expectations of a 6.5 percent rise and confirming a sharp rebound in household spending.

Year-on-year growth was the highest on record under the comparative data series, according to Reuters data, beating a previous high of 9.6 percent from September 2003.

"If the central bank sticks to its word of having a forward looking monetary policy, a rise in interest rates is on the cards. What else could the CNB be waiting for?" said David Marek, chief economist at Patra Finance.

The main two-week repo rate stands at 2.5 percent, the lowest in the European Union.

Two out of six central bank board members present at last month's policy meeting voted for a hike. The other four voted to keep the rate unchanged for the seventh consecutive month.

Inflation hit a 7-month high of 2.5 percent in April -- above both market and CNB forecasts -- and the number of unemployed fell to the lowest for that month in eight years.

The data and central bank statements have prompted investors to increase bets on a near-term monetary tightening since then.

"It is becoming evident that higher interest rates are necessary in order to get medium-term inflationary risks -- which are currently pointing north -- under control," said Radomir Jac, chief economist at PPF Asset Management in Prague.

"We keep our view that the Czech central bank has enough arguments to raise its interest rates as soon as its May 31 board meeting, with a further policy tightening to follow in second half of the year (2007)."

The statistical bureau said ex-autos, retail sales were up 8.8 percent year-on-year in real and seasonally adjusted terms, which it said was the second highest growth number on record.

Seasonally-adjusted sales including the auto segment rose by a real 1.7 percent month-on-month in March and jumped 0.7 percent excluding the auto segment.

[PRAGUE/Reuters/Finance.cz]