An increase in rates of up to half a percentage point is gaining more support at the CNB. Mora warns against a tense labor market

Czech Central Bank could accelerate interest rate hikes this month to tame them unexpectedly fast inflation. Here according to vice governor CNB Brand Mory driven by even the lowest rate unemployment v European Union.

Although consumer prices pushing higher global factors in general, Mora said that the main inflation challenge for the Czechia is “very strong” domestic pressures associated with a shortage of workers, which persists despite the pandemic measures.

Mora is already the second Czech rate maker to say this week that after two increases of a quarter of a percentage point in the summer, the council can increase by up to half a percentage point on 30 September. If this really happened, it would be the most tightening step in almost ten years in the whole EU.

“The chances are now clearly between 25 and 50 basis points, perhaps closer to 50,” Mora said in an interview on Wednesday. “The urgency is definitely growing, although for the 50 basis points vote, I will need our staff to justify this in more detail and we need to explain it enough.”

While the euro area and Poland sticks to purchases bonds even record low rates to boost their economy, Czech republika a Hungary on the contrary, borrowing costs increased in order to curb the rapid rise in prices. Czech inflation was the fastest since 2008 last month and has been above the 2% target for almost three years central bank.

Unlike central banks, which emphasize the transitional nature inflation, Mora says tense Czech labor market requires rather measures than words. The Czechia is still recording more vacancies than he has unemployed, even after several months of hard closures due to a pandemic this year. “Czech economy it now seems to be more inflationary than we thought, “he said.

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Along with the shortage of workers, which is the driving force behind rapid growth mezd, according to Mora, potential inflation risks also include higher household savings and government spending. According to him, the current increase means that Central Bank rather, it “gradually reduces the still very relaxed” monetary conditions, rather than tightening them.

Money market prices now show that the market is betting on a tightening of half a percentage point at the meeting on September 30 and November 4, after which investors expect a slowdown. But Mora declined to comment on the outlook after September due to lingering uncertainty. He said a possible decline in global material prices and slow progress vaccination in some parts of the world, it can result in “temporary disinflationary or even deflationary pressures” at home in 12 to 18 months.

In the last two meetings on rates, this economist voted, in accordance with the majority of the seven-member council, for a standard increase of a quarter of a point. Two creator members did not want any change and one sought to increase by up to half a point, a step the bank has never taken since more than twenty years ago. flights began to focus on inflation. The latest increase in rates of this magnitude in the EU has done Hungary in 2011.

“We probably won’t make a big mistake if we move a little faster than before,” Mora said. “It is possible that the overall size of the tightening will remain the same, but we will have to translate it more forward.”

Source: Bloomberg

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