29th May 2017

Reuters/CNB: Property prices are overvalued. Wait with rate hikes now rather than reverse later

The Czech central bank is in no rush to tighten policy and should only move when it is sure it will not have to undo what will be its first rate hike in almost a decade, board member Vojtech Benda said on Monday.

The Czech National Bank made an initial tightening move on April 6, when it dropped a cap on the crown currency's exchange rate after using the weak crown for 3–1/2 years as a tool to revive inflation.

The next step will be moving the main interest rate, the two-week repo rate, from the 0.05 percent floor it has sat at since 2012. The EU member country saw its last interest rate tightening in 2008, before the global financial crisis and two domestic recessions.

The bank's quarterly staff forecast assumes the first hike in the third quarter, as the economy grows and Europe's tightest labour market pushes up wages and prices.

Benda said the bank would tighten rates in the coming year but he also wanted to wait a few months before he makes up his mind on the timing.

"We need to let the dust settle a little bit," he said.

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Read also Experts expect Czech property prices to jump 10 percent by end of year by Radio Praha.

Members of the American Chamber of Commerce in the Czech Republic