The Czech National Bank (CNB) has maintained interest rate stability for half a year under a revamped board led by Governor Ales Michl, seeking to anchor the economy as high inflation saps consumer and company activity.
The stable policy stance comes after a combined 675 basis points in hikes between June 2021 and June 2022, bringing the key rate to a more than two-decade high of 7.00%.
"Staff recommends further hikes to the policy rate in the short term to above the current level of the policy rate," the IMF wrote in its conclusions published in a Jan. 20 statement, which confirmed preliminary recommendations in November.
"While a careful balance between high inflation and weakening economic activity needs to be taken, priority should be given to decisively quell inflation."
"If inflation expectations become untethered, this would require a significantly higher tightening to restore price stability and thus entail more costly economic adjustments," it added.
The bank has kept the option of a rate hike on the table as it monitors the risk of a pick-up in wages or signs of inflation expectations becoming unanchored.
CNB Vice-Governor Eva Zamrazilova reiterated in an interview with daily Lidove Noviny on Tuesday that inflation expectations were a risk. She said, though, she saw signs that wage growth would between 5-10% at companies, which would be acceptable.
"If it were more, it would support a certain persistence of inflation this year as well. And it would require further tightening of interest rates," she told the newspaper.
(Reporting by Jason Hovet; Editing by Christina Fincher)
