PRAGUE: The Czech National Bank (CNB) may raise its main interest rate above 1 percent by the end of this year, sooner than its staff forecast predicts, as the economy is overheating, Vice-Governor Mojmir Hampl was quoted as saying.
The central bank's board kept the two-week repo rate at 0.75 percent at its last policy meeting on March 29 after a "very lively" debate on the pace of further normalisation of monetary policy.
The central bank has indicated that the next rate rise will not be until around the end of the year or early next year as inflation has eased in the past months, but CNB Governor Jiri Rusnok has said a rate hike could come sooner if the Czech crown appreciates more slowly than forecast by the central bank.
Hampl added to that view.
"An economy with workforce reserves practically spent, beyond its manufacturing strength, at the maximum of its production capability... overheating, (such an economy) should have interest rates at a more normal level sooner," Hampl said in an interview with Czech public radio.
The interview was taped on Wednesday, but aired on Saturday to comply with a CNB's rule preventing board members from commenting on monetary policy within a week prior or following a policy meeting.
CNB sees a normal level of its main interest rate at around 3 percent as it targets inflation at 2 percent.
Asked whether the main rate could be above 1 percent at the end of this year, Hampl said: "That is quite possible."
The Czech central bank, which began its current tightening cycle last August, is one of the few in Europe raising borrowing costs. Economic growth reached 5.5 percent year-on-year in the fourth quarter but inflation has slowed to 1.8 percent in February, below the central bank's 2 percent target for the first time since November 2016.
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