By Jan Lopatka
PRAGUE, March 11 (Reuters) - Czech consumer and producer
prices have grown above expectations but the crown currency's
record strength has a very restrictive impact on monetary
conditions, central bank Vice-Governor Miroslav Singer said.
Singer told Reuters in an interview he had not seen any
signs the currency strength was unbearable for exporters, but
that he would not mind if it served to somewhat slow down the
economy growing from growing at the top of its potential.
He declined to discuss his stance at the next central bank
policy vote on March 26, saying he would study all relevant
information closer to the meeting.
"The values where the exchange rate is today undoubtedly
have a large impact on monetary conditions here, they have a
very restrictive impact," Singer said.
"If it shows that the export sector, current account etc.
can bear it, and so far it does not seem it should not be able
to bear it, then there is a reason to re-evaluate the scenarios
we should follow," he said.
Some analysts expect the bank to keep rates flat but some
expect one more interest rate hike to keep price expectations
anchored after inflation soared to a 9-year high of 7.5 percent
year-on-year in January and stayed at the same level last month.
The crown hit a record high of 24.83 to the euro <EURCZK=>
last week, driven by a strong economy and exports, as well as a
shrinking negative interest rate differential with the euro
zone.
It has since cooled to 25.05 on Tuesday but still stood 5.5
percent stronger this year in local currency terms, making it
the biggest gainer in the region.
Singer's language showed less concern about crown strength
than comments by Governor Zdenek Tuma last week that the crown
had firmed beyond any levels supported by fundamentals.
Singer said that with the current account gap at just over 2
percent of gross domestic product and companies reporting a
shortage of labour, exporters did not seem to be struck hard.
"(The exchange rate) will slow down the economy a little, it
seems it could, but that's all. The economy is running above the
peak of its capacity, so some cooling ... will not inflict
dramatic harm."
PPI, ADJUSTED INFLATION CONCERNS
Singer however voiced concern over inflation figures,
notably producer prices and consumer inflation excluding
regulated prices, food, fuels, and the impact of tax changes.
"The inflation numbers surprised us, even in items I am
sensitive to," Singer said.
Industrial producer prices jumped 6.0 percent year-on-year
in January. February figures are due out on Friday.
The central bank has raised interest rates by 200 basis
points since late 2005 as the central European economy roared
ahead at a speed over 6 percent in the past three years.
The main two-week repo rate has stood at 3.75 percent since
the latest 25 basis point hike on Feb. 7.
Singer reiterated the central bank's view that inflation
would fall back within a year toward its target of 3 percent,
+/- 1 percentage point.
He said the economic woes in the United States would have
some impact on the Czech economy but this would be tamed.
A European slowdown could lead some companies to relocate to
cheaper EU states such as the Czech Republic, and could also
raise demand for relatively cheap Czech goods, he said.
(Editing by Stephen Nisbet)
