(Updates with foreign trade data, crown at record high)
By Marek Petrus
PRAGUE, Jan 10 (Reuters) - The Czech central bank (CNB) will
need to continue raising interest rates, which are already at
from 5-1/2-year highs, if inflation expectations jump across the
economy, two CNB policymakers said on Thursday.
Their hawkish comments, and data pointing at a record
foreign trade surplus last year, propelled the crown to lifetime
highs against the euro <EURCZK=> and dollar <CZK=>.
Mojmir Hampl and Vladimir Tomsik, members of the CNB's
seven-strong policy board, said that a surge in inflation to
6-year highs above 5 percent should be temporary, and price
levels should calm down later.
"The duration of the inflation deviation, however, depends
not only on the CNB," they wrote in a joint article in the
business daily Hospodarske Noviny. "If consumers, producers, and
trade unions overshoot in their inflation expectations and
project them into their demands, then the CNB would be forced to
adopt a stricter interest rate policy."
Hampl and Tomsik voiced belief that one-off inflation
factors, such as a global rise in food prices and domestic tax
changes, would start abating from early 2009 and inflation would
then return to the CNB's 3 percent target.
Their urging against a rise in inflation expectations and
wage demands echoed the CNB's often-stated line that consumer
prices would ebb within a year or so, and that it is determined
to keep inflation expectations anchored around the target level.
Their comments followed Wednesday's figures showing rising
food prices boosted annual inflation to 5.4 percent in December,
its highest level since August 2001 and well above the CNB's
projections
(for details please double click on [])
The numbers cemented analysts' view that a further rise in
interest rates was likely soon, following four increases last
year that brought the two-week repo rate to a 5-1/2-year high of
3.5 percent, 50 basis points below the main euro zone rate.
The prospect of CNB rate rises erasing the 50 basis point
discount versus the main euro zone rate by the middle of this
year has lent support to the crown, already underpinned by
robust economic growth of about 6 percent.
Data released earlier on Thursday showed the foreign trade
balance expanded to a higher than expected 11.3 billion crown
($639.5 million) surplus in November [].
Analysts said last year's surplus was likely to have swelled
to a record 85-88 billion crowns, offsetting the growing
outflows of profits repatriated by foreign owners of Czech
firms.
Helped by both the bullish data and the hawkish CNB message,
the crown extended its gains from the start of this year to 2.5
percent on Thursday, building on last year's firming by 3.5
percent and scaling successive record highs.
It traded at 25.850 per euro <0#EURCZK=> by 0935 GMT, having
earlier hit a high of 25.830. It set a record of around 17.570
to the U.S. dollar.
(editing by David Stamp)
