RPT-UPDATE 1-Czech c.bankers disagree on rate hike timing

25.09.2007 | , Reuters
Zpravodajství ČTK


perex-img Zdroj: Finance.cz

(Writes through, adds vice-governor's statement, background)...

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By Marek Petrus

PRAGUE, Sept 25 (Reuters) - Czech central bankers (CNB) have differing views on when interest rates will need to rise further to contain inflation stemming from a tight labour market and robust household demand, CNB policymaker Vladimir Tomsik said.

In a presentation published on Tuesday, he said a firmer crown, together with slowing economies and falling credit costs in both the euro zone and the U.S., were raising the prospect of a milder rise in Czech inflation than expected.

The CNB's board meets on interest rates on Thursday. It raised the main two-week repo rate to a five-year high of 3.25 percent in August, its sixth hike since lifting benchmark credit costs from an all-time low of 1.75 percent in October 2005.

"It still holds true that we are finding ourselves in a period of rising rates," Tomsik said in a presentation delivered at a regional chamber of commerce meeting on Monday and posted on the CNB's official Web site, www.cnb.cz, on Tuesday.

"However, the bank board is not automated and individual members differ in what weight they assign to the risks to the inflation projection. This leads to differing opinions, particularly on the timing of a rate rise," he added.

Most analysts have bet the CNB would take a breather in its tightening drive following three hikes in the past four months and opt to hold rates flat due to the crown's 4 percent rise since July and a softer policy backdrop abroad [CNB/INT].

The credit squeeze sparked by a crisis in the U.S. home lending market and resulting turbulence in financial markets has fuelled concerns about a slowdown in euro zone's economic growth and raised the spectre of a possible U.S. recession.

The U.S. Federal Reserve cut its benchmark rate by a whopping half a percentage point to cushion the economy against the crisis, while the European Central Bank has appeared to at least postpone a further rise in euro zone interest rates.

CNB Vice-Governor Miroslav Singer, delivering a presentation at the same event along with Tomsik, said the turmoil in global markets would only have an indirect, and likely limited, impact on the Czech economy.

But Tomsik said the one-year euro interbank deposite rate had fallen by 15 basis points since end-August. Analysts say lower euro zone rates give the CNB a leaway to hold off on raising rates to avoid an unwanted firming in the crown.

"A slowing in the real economy in both the euro zone and the U.S. and declines in rates pose anti-inflation risks to the current forecast," said Tomsik. He said a recent rise in the crown was another downside risk to the CNB's inflation outlook.

The crown traded around 27.55 per euro on Tuesday, up from levels around 28.0-28.2 which economists believe the CNB had assumed in its most recent inflation forecast made in July.

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