May 17, 2017 / 2:16 PM / in 8 months

UPDATE 1-Czech rate rise possible in second half of year -Nidetzky

(Adds quotes, details, housing market comment)

By Robert Muller

PRAGUE, May 17 (Reuters) - The Czech central bank could return to a normal monetary policy in the second half of the year by raising interest rates from near zero, board member Tomas Nidetzky said on Wednesday.

The central bank abandoned a longstanding cap on the crown currency’s exchange rate on April 6, calling it the first step toward tightening monetary conditions.

Nidetzky said policy tightening would be determined by data and not time and said also it was clear rate rises would be gradual.

“It is possible in the second half (to start a return to normal policy),” Nidetzky told Reuters on the sidelines of a parliamentary budget committee meeting.

”The economy is doing well, we will see how inflation develops, we will see if successful developments, including the exchange rate, continue. If the conditions are in place... we will start to return to standard monetary policy.

“Standard policy means raising interest rates.”

He noted the bank’s latest staff forecast expects rates rising toward the end of the year, which he said was possible, depending on the development of macroeconomic indicators.

Nidetzky said that the recent deviation of gross domestic product and inflation data from the bank’s forecasts would not impact its view, and the bank would wait for more data.

The economy expanded by 1.3 percent quarter-on-quarter in the first three months of the year, above market and central bank forecasts, preliminary data showed on Tuesday. April inflation dropped to 2.0 percent, below expectations.

The crown has been slow to firm since the end of the currency cap, trading on Wednesday at 26.48 to the euro, just above the former cap level of 27.

Analysts mostly see rate hikes coming in the first half of 2018 but point to the exchange rate development as a risk because of an overhang of long crown positions still in the market.

The bank has said a weaker-than-expected exchange rate in the longer term would add to the need to tighten policy through interest rates.

With solid economic growth, unemployment the lowest in the European Union and still low interest rates, the Czech housing market remains hot, with prices continuing to rise even after the central bank introduced stricter lending conditions.

Nidetzky said the bank would like to cool the market but said its problems stem mainly from tight supply. (Writing by Jason Hovet)

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