September 15, 2017 / 7:50 AM / a year ago

UPDATE 1-Czech rate hike this year realistic, central bank's Holub says

(Adds details, background)

PRAGUE, Sept 15 (Reuters) - There is a realistic chance of another Czech interest rate hike this year, partly due to an unexpectedly fast rise in wages, the central bank’s monetary department director Tomas Holub was quoted as saying on Friday.

The Czech National Bank delivered its first rate hike in almost a decade in August, lifting its base rate by 20 basis points to 0.25 percent after starting policy tightening in April when it abandoned a long-held currency cap.

Several central bankers have spoken of the chances of another rate hike this year, despite the bank’s latest forecasts indicating a move only next year, as the economy gains steam and low unemployment pushes up wages faster than expected.

Holub, who is not a rate setter on the bank board but is in charge of economic forecasting, told newspaper Hospodarske Noviny that inflation developments were putting the bank in a comfortable situation and that weak pressure for the crown to firm was creating space for a smoother rise in rates.

“Raising rates by the end of the year would be a result of the bank board seeing the risk of higher than forecast inflation. The unexpected fast rise of wages also falls into this picture,” Holub said.

“Raising rates by the end of the year at the moment looks rather realistic.”

The average Czech gross monthly wage rose by 7.6 percent year-on-year in the second quarter. Inflation sat at 2.5 percent in August, above the central bank’s 2 percent target.

Holub said there was no risk of inflation far overshooting the target and that the economy was not overheating dramatically. He said raising rates did not need to be carried out in a panic.

“It can be a smooth series of rate rises not only in the rest of the year but also in the years 2018 and 2019,” Holub said. “There could be some pause but it is not necessary for it to be three quarters of the year long as we saw in (the central bank’s) August forecast.”

The central bank holds its next policy meeting on Sept. 27, followed by another meeting on Nov. 2 when it will have an updated macroeconomic outlook. (Reporting by Jason Hovet; Editing by Mark Trevelyan)

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