Time for Czech rate hike is close, central bank governor says
* Czech central bank governor says September rate hike
* He says two rate hikes by end of 2018 "strong scenario"
* Czech central bank board to decide on rates on Sept. 26
By Robert Muller and Jason Hovet
PRAGUE, Sept 12 (Reuters) - A revved-up Czech economy is
pointing to an interest rate hike as soon as this month and
another possible move before the end of the year, central bank
Governor Jiri Rusnok said in an interview with Reuters.
The Czech National Bank has lifted interest rates at its
last two policy meetings, adding to hikes carried out since
August 2017 when it first set out to begin normalising monetary
policy after a long period of ultra-loose measures.
Investors are giving a better than 70 percent chance that
policymakers will hike the 1.25 percent, two-week repo rate
further when they meet again on Sept. 26.
The latest data has underscored that view, showing growth is
above expectations, wages continue to rise at their fastest pace
in 15 years and inflation has been above target for all but
three months since the beginning of 2017.
Rusnok said in the interview on Tuesday that he expected a
serious debate on a possible interest rate move at the meeting
and a hike was a strong possibility.
"For me, (a move) is quite close because the way I see it we
cannot spoil anything, the risk of being... hasty is minimal,"
he said. "I see very little in counter-arguments (for a later
hike), or I see it as quite weak."
The strong economy has contributed to home prices growing
among the fastest in the European Union and unemployment falling
to the lowest level in the bloc. Rusnok said growth "was moving
at relatively high gear".
It comes at a time when the crown currency has been caught
up in emerging-market selling pressures, the latest caused by
the Turkish lira's slide.
The Czech central bank had been counting on a firming
currency to help it keep inflation at bay this year before it
revised weaker its crown exchange rate forecasts in its
quarterly macroeconomic outlook in August, expecting the crown
to stay under pressure before firming in 2019.
This move indicated a steeper rate path in 2018 to
compensate for the sluggish crown, and Rusnok said he agreed the
outlook still pointed to two interest rate hikes this year,
calling it a "strong scenario".
"It can be twice more by the end of the year, or quite soon
in the coming period," he said. However, he said he did not see
any need to go beyond that as there was no urgent need.
WAITING ON CROWN
The crown remains the biggest wild card for the bank. It
traded around 25.65 to the euro on Tuesday.
The latest outlook assumes an average exchange rate of 25.80
to the euro during the third quarter before a slight rise to
25.30 in the fourth quarter. By the first quarter next year the
crown is forecast to firm to 24.80.
"We think (pressure on the crown) will fade out. Of course
no one knows how quickly it will fade out. It is a big unknown,"
Inflation accelerated to 2.5 percent in August, well above
the bank's 2 percent target. Unemployment stayed at 3.1 percent,
according to labour office data, while job vacancies were a
record high, surpassing the number of available workers for the
fourth month in a row.
Amid that, wages grew a real 6.2 percent in the second
quarter and the central bank forecasts nominal growth of 8.6
percent in 2018, increasing inflation pressures.
Rusnok said he noted the "swift pace" of core inflation in
August, which had been resistant to moving upwards.
"We can see that there now, perhaps a bit more, and that
gives us a bigger and more comfortable space for the idea of
raising rates, of continuing with their normalisation," he said.
(Reporting by Robert Muller and Jason Hovet
Editing by Mark Heinrich)
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