By Petra Vodstrcilova and Marek Petrus
PRAGUE, Jan 22 (Reuters) - The Czech central bank (CNB)
would be ready to raise interest rates further if demand-led
price pressures flare up or inflation expectations rise,
policymaker Vladimir Tomsik told Reuters in an interview.
Tomsik said the CNB had already demonstrated its
determination to clamp down on resurgent inflation by increasing
its key two-week repo rate <CZCBIR=ECI> four times last year to
a 5-1/2-year high of 3.50 percent.
"We have to filter out the cost-push inflation pressures and
administered items -- or supply-side inflation pressures," he
said in the interview conducted on Monday.
"When we see demand-pull pressures and when we see inflation
expectations rise, then I think no central bank should hesitate
to raise rates," said Tomsik, who is regarded on financial
markets as a moderate on monetary policy. "I think the CNB would
also be ready for that, and it has already shown this. After
all, it raised interest rates four times last year."
Tomsik and his six fellow CNB policymakers hold their first
policy meeting this year on Feb. 7, and investors widely expect
them to consider raising rates by another quarter percentage
point.
Rate-setters will have a new quarterly inflation projection
on hand at the meeting to show the strength of demand pressures
on prices and help to guide their decision. Tomsik said he had
no knowledge of the forecast at the time of the interview.
Soaring food prices boosted annual inflation to a six-year
high of 5.4 percent in December, and many analysts expect it
to reach 6 percent in January.
High inflation and strong economic growth have left the CNB
at odds with the world's major central banks, which have either
shelved plans for rate tightening or eased policy due to growing
concerns about global growth.
BACK AT TARGET IN 2009
Despite maintaining a tightening bias, Tomsik saw no need
for rapid-fire rate increases. "We do not react to ex-post
inflation. We react to inflation 12-18 months forward, and I do
not see that inflation should accelerate in any substantial
way," he said.
So far Tomsik said inflation had been fuelled by one-off
cost shocks, such as a surge in food and energy prices, and
changes in taxes and administered prices, all factors that are
outside the realm of monetary policy.
He believed that annual price growth was bound to return to
the CNB's 3 percent target in 2009, as those factors fade out.
"It does not make sense to raise interest rates against
administrative shocks and cost shocks. You will only hurt the
economy," said Tomsik.
CLOSE TO PEAK?
Tomsik showed sympathy for the view of fellow policymaker
Mojmir Hampl that rates might be close to their top, or have
possibly already peaked [], as economic growth was
likely to slow in 2008 from last year's forecast 6-plus percent.
"I quite understand that statement," said Tomsik. Still, he
was worried about demand pressures as the economy had been
running faster than is its non-inflationary growth rate. "It is
a question of whether inflation is not already somewhat
generated from the demand side as we had hit the peak of cycle."
The strong crown was helping the CNB in taming price
pressures but this might not be enough, said Tomsik.
The crown scaled an all-time high of 25.820 per euro on Jan.
15. It traded at around 26.30 <EURCZK=> on Tuesday morning, up 6
percent over a year ago. Tomsik said the currency's moves were
merely one input for decisions guided by the inflation target.
(Writing by Marek Petrus; editing by David Stamp)
