Czech rate hikes seen interrupted as slower inflation buys time

Bloomberg

The Czech Republic is set to leave further interest-rate increases until next year as a slowdown in inflation sidelines calls from some within the central bank to raise borrowing costs more aggressively.
After raising its benchmark rate in August and November to cool price growth in one of Europe’s fastest-growing economies, the central bank will hold it at 0.5 percent, according to 16 of 23 economists surveyed by Bloomberg. The rest see a 25 basis-point hike.
The Czech National Bank is debating the timing of further rate increases after inflation matched staff projections that assume no more monetary tightening this year and up to two hikes in 2018.
Even so, price growth remains well above target, and two members of the seven-person board said this month that they may back higher borrowing costs at the last meeting of 2017.
“As the economy has developed almost exactly in line with the forecast, we believe the bank’s board will stay on hold,” said Viktor Zeisel, an economist at Komercni Banka AS in Prague. “Yet some board members might consider monetary conditions too loose due to a weaker koruna. We thus expect the board to be split, and our call for no hike is a close one.”
While the koruna is still the world’s best-performing major currency this year against the euro, it’s depreciated 0.3 percent since the last rate hike on November 2, held back by the oversized holdings amassed by foreign investors mostly before the central bank ended its cap on gains in April. It traded little changed.