The economy is currently overheating, most of all in the labour and property markets, CNB board member Tomas Nidetzky told Reuters. The said that the real equilibrium rate for GDP growth was at about 2.5-3% at the moment, something that everyone at the CNB was aware of. Given the latest macroeconomic data, like the fastest wage growth in the past 15 years, inflation slightly above the CNB target and a weaker CZK than previously expected, there isn’t really room for stronger growth than the equilibrium rate, Nidetzky argued. Nidetzky was openly hawkish, saying that there was no need to wait for the next forecast of the CNB, due in August, in order to start with monetary tightening. In fact, he believes that it wouldn’t really matter if a rate hike came in June or in August, as the macroeconomic effect would be similar. He furthered that he wasn’t concerned with a rate hike now, given that the very relaxed monetary policy of the CNB would allow the CZK to appreciate.
Nidetzky thus joins CNB vice governor Mojmir Hampl in insisting that a rate hike should come earlier rather than later. Their arguments match, as Hampl also considers the economy as overheating. It certainly makes the situation much more interesting at the next monetary policy meeting on Jun 27, as there are now 2 out of 7 members who believe a rate hike should come now. We remind that only Hampl voted for a rate hike on May 3, but now he may not be the only one. The remaining board members have been much more careful thus far, though Governor Jiri Rusnok has indicated that a rate hike could come sooner in case the CZK didn’t appreciate as expected. Yet, he toned down his statements and we doubt he will vote for a hike now. Among other recent statements, CNB vice governor Vladimir Tomsik remains largely a dove, even though he shares overheating concerns, while Marek Mora repeated his concerns over a CZK not strengthening fast enough.