A Rate-Hike Clash Is Brewing Again Inside Europe’s Rare Hawk

(Bloomberg) -- The Czech central bank, one of the last in Europe to raise interest rates this year, is gearing up for another clash over whether it needs to once again lift borrowing costs to tame inflation.

Policy makers expressed diverging views this week on how they should tackle persistent domestic price pressures as the global slowdown threatens to hit the $245 billion export-oriented economy. The bank held rates in the last three meetings, interrupting a series of eight increases over two years.

While the board’s majority outvoted two hike-seeking dissenters on Sept. 25, the bank assessed the debate as “very balanced” between arguments for staying put and hiking. It said the panel would return to debating potential tightening again in November.

With strong consumer spending keeping inflation above the target, the debate is about properly assessing the impact of worsening conditions abroad. The board will be armed with new staff forecasts on Nov. 7, after twice choosing to disregard the rate hike implied in the August projections.

One of the factors that could influence the rate decision is the progress with the U.K.‘s departure from the European Union. The central bank has cited a potential no-deal Brexit among main sources of uncertainty, so an orderly divorce might support arguments for higher interest rates.

In the last meeting, those voting for no change reasoned that the bank’s policy should be predictable for financial markets. Since then, investors have increased wagers on potential rate increases.

With less than three weeks to go until the next deliberations, the outcome of the rate meeting again looks like a close call.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Peter Laca, Michael Winfrey

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