CEE ECONOMY Czech inflation hits 16%, raising bets of a big rate hike in June

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Czech koruna coins are seen in front of a displayed Czech Central Bank (CNB) logo in this image taken on April 1, 2017. REUTERS/David W Cerny/Illustration/File Photo

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  • Czech inflation rises above expectations
  • Markets expect a rate hike of at least 100 basis points in June
  • Inflationary pressures still strong in CEE, monetary tightening
  • Inflation in Romania reaches 14.5% in May

June 10 (Reuters) – Czech headline inflation rose to 16% in May, above expectations, hitting a nearly 30-year high, statistics office data showed on Friday.

The data – ahead of the central bank’s forecast of 14.9% – added to bets that the Czech National Bank would make another sharp rate hike when the board meets for the last time this month in its current composition.

Markets are now pricing in more than a 100 basis point rate hike to take the policy rate well above 6% (CZCBIR=ECI) on June 22 before three out of seven members’ term ends.

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“After that number, I believe the bank will make a big move, not just the already suggested 75 basis point move. The question is how much more,” said Pavel Sobisek, chief economist at UniCredit in Prague.

The country’s President this week appointed three new members to the central bank’s board, easing market concerns about a sharp, muted change in the board. Continue reading

Czech central banker Ales Michl, who has spoken out against last year’s 550 basis point rate hikes, will take over as governor from July and has been struggling to keep interest rates stable.

Central banks in Central and Eastern Europe have already hiked interest rates sharply over the past year to combat rising inflation as tight labor markets bolster consumer demand and allow companies to pass on rising costs.

Czech inflation has been stronger than in some other countries like Hungary and Poland, where price caps or other anti-inflationary measures have eased some of the burden of record commodity prices.

However, Friday’s data also showed that headline inflation in Romania hit 14.5%, providing further evidence that interest rates there will continue to rise.

In Romania, the central bank said in May it would not allow interest rate differentials with its regional peers to widen any further, raising interest rates by more than expected 75 basis points to 3.75%, the sixth straight hike.

“After the (National Bank of Poland) hiked its policy rate by 75 basis points (this week), we expect that the (National Bank of Romania) will adjust it at the next rate-setting meeting on July 6,” Erste Group Bank said .

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Reporting by Jason Hovet in Prague and Luiza Ilie in Bucharest; Editing by Catherine Evans and Barbara Lewis

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