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(Bloomberg) — Czech central bank Governor Ales Michl said policymakers are ready to raise interest rates if global and domestic risks threaten to boost underlying inflation pressures.
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The Czech National Bank left the benchmark at 3.5% this month, saying that rates are still “moderately restrictive.” While the board won’t react to the primary impact of higher energy costs, it will do everything necessary to preserve low consumer price growth, even if keeping rates higher for longer weighs on economic growth, Michl said in an interview posted on the Youtube channel of the Insider podcast on Monday.
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“We won’t be afraid to raise rates” if there is a risk that inflation adjusted for energy will accelerate, Michl said.
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Michl said a key indicator for him is the momentum of core inflation, expressed as the three-month rolling average of annual change. The governor added that he was also watching the money supply and credit growth.
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At the May 7 meeting, officials took the view that the domestic economy and monetary policy were in a “relatively favorable starting position” when the Iran war broke out. This gave them time to assess the situation without rushing with a reaction, according to minutes from the debate.
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An April central bank survey showed that most economists expected no rate change within one year. Still, investors started betting on monetary tightening after the Middle East conflict began and forward rate agreements now indicate expectations of around one percentage point of policy tightening over the next 12 months.
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“We will be tough and we won’t give in,” Michl said in the Insider interview. “We have to be ready for slower economic growth because our rates will be higher than we were used to in the past.”
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