Local Economists Debate Odds Of Small CNB Rate Hike Despite Overwhelming Call For No Change

In an opinion piece for Hospodarske Noviny daily, Conseq Investment Management Chief Economist Martin Lobotka writes that he expects the CNB to raise interest rates today. The piece has been doing the rounds in Czech social media since its publication earlier this week. Lobotka is the only economist we have seen openly calling for a rate hike from the CNB today.

• In his article, Lobotka argues that wage growth is running hot, the labour market remains tight, the real interest rate (nominal minus core CPI inflation) is around zero, while fiscal policy is unprecedentedly loose. At the same time, he dismisses the arguments against tightening as irrelevant, noting that the CNB does not need to consider a fair distribution of the costs of its monetary policy.
• The piece was retweeted by J&T Banka Chief Economist Petr Sklenar with a comment "recently unimaginable, now unlikely, but threatening to be inevitable." Sklenar later added that a "+25bp would be greatly celebrated by those who are convinced that they will lower rates from September," suggesting that a token hike now might allow for a sooner cut.
• However, in a brief note signed by Sklenar, J&T officially call for an on-hold decision today, while flagging the risk that “new voices for raising rates may appear.” They suggest that “the chance of a rate hike itself is slim, but it shouldn’t come as a complete surprise,” adding that they “expect that the stability of CNB rates could last not only this year, but also until the beginning of next year.”
• In our CNB Preview we also flagged a comment from Czech Banking Association Chief Economist Jakub Seidler, who suggested that wage dynamics and loose fiscal policy open up room for a small rate hike, “which would mainly have a signaling character and, on the one hand, act as a preventive measure against a possible weakening of the koruna, and also affect market expectations regarding the pricing of future rate cuts.” In comments under his Twitter post, Seidler admits that it is a “close call.”