Rising Price Expectations Were Main Fear Behind Czech Rate Hike
(Bloomberg) -- Most Czech central bankers voted last week for the biggest interest-rate increase in 24 years because they feared that inflation expectations could get out of control, according to minutes from the meeting.
The prevailing view of the seven-member policy board was that domestic pressures stemming from a dire shortage of workers played a “significant role” in surging consumer prices. Tomas Holub said that higher rates would also help counter the “observed overheating” of the mortgage and property market.
“Jiri Rusnok, Marek Mora, Vojtech Benda and Tomas Holub warned against a loss of anchoring of inflation expectations and said that monetary policy had to respond to that risk,” the bank said in the minutes. “Vojtech Benda and Marek Mora emphasized that the situation of the Czech economy differed significantly from that of many other European countries mainly in that the Czech labor market was very tight.”
Oldrich Dedek and Ales Michl disagreed with the majority of the board and voted to leave rates unchanged on Nov. 4. They said that external cost factors beyond the control of Czech monetary policy were the dominant cause of inflation.
“Oldrich Dedek and Ales Michl said that the rise in inflation expectations was temporary and the cost shock situation needed to be better explained to the public for inflation expectations to stabilize,” the bank said in the minutes.
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