Czech central bank ready for one more big rate hike to battle inflation

2 minute read
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  • Rate decision due on Feb. 3 at 2:30 p.m. (1330 GMT)
  • Nine analysts see main rate rising by 75 bps to 4.50%
  • Two analysts expect 50-bps hike, one sees full pct point hike
  • Seven analysts see one more hike in March, 6 of them see 25 bps
  • Only one analyst predicts main rate peak above 5% this year

PRAGUE, Jan 31 (Reuters) - The Czech National Bank is likely to deliver one more larger-than-standard interest rate hike when it meets on Feb. 3 as it seeks to further cool an inflation spike which is expected to slow this year, a Reuters poll showed on Monday.

Wanting to anchor rising inflation expectations, the central bank has raised its main rate by a total 300 basis points at its last three policy meetings, including a 125 basis-point hike in November that was the biggest in 24 years.

In the Reuters poll, nine out of 12 analysts predicted the bank would follow that series of hikes by lifting the two-week repo rate (CZCBIR=ECI) by 75 basis points to a 20-year high of 4.50%.

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Two poll respondents saw a 50 basis-point hike and one expected a full percentage-point rise.

Central European rate setters have been raising interest rates since last year to contain inflation spurred by global supply chain disruptions and rising material costs as well as strong domestic labour markets and rising wages.

Last week the U.S. Federal Reserve also signaled a rate hike in March.

In the Czech Republic, central bankers have said that another, heftier hike was possible in February. Board member Vojtech Benda told Reuters that while a hike bigger than 50 basis points was possible, the main rate should not surpass 5% in the cycle.

That view of rates peaking at or below 5% in the months ahead has also been flagged by Governor Jiri Rusnok and other board members.

Analysts in the poll mostly shared that outlook, with only one respondent predicting the main rate would surpass 5%. Most analysts who gave an outlook saw a heftier hike in February followed by a standard 25-basis-point move in March.

The central bank is seeking to keep firms' and consumers' inflation expectations from becoming unanchored during this surge in inflation.

Czech inflation hit a 13-year high of 6.6% in December, and the central bank has forecast the headline rate could climb past 9% in the early months of 2022 and possibly above 10%.

The Czech National is expected to tighten policy further to battle surging inflation
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Reporting by Mirka Krufova; Writing by Robert Muller; Editing by Jan Harvey

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