(Bloomberg) -- The Czech central bank will probably halt its monetary easing in the near future and hold interest rates for some time to bring inflation back to target, Governor Ales Michl said, spurring gains in the koruna.
After inflation slowed to near the 2% goal earlier this year, price growth is now temporarily accelerating and may exceed 3% in the coming months. The fresh central bank forecast shows that core inflation, a measure of underlying domestic demand pressures, still isn’t fully under control, according to Michl.
“That’s why we are very likely to pause the process of lowering interest rates soon,” Michl said at a university speech at the Czech city of Ostrava on Wednesday. “We will choose stability of interest rates for some time, assess the new forecast with a goal to bring core inflation slightly below 2% and the overall inflation to the target.”
The comments helped boost the Czech currency, which appreciated 0.2% against the euro to its strongest level since September. Money-market prices showed investors paring their bets on further monetary easing.
Policymakers in Prague have lowered their benchmark rate by 3 percentage points over the past year to 4%, delivering the eighth consecutive cut last month. With the next monetary meeting due on Dec. 19, central bankers are weighing a sluggish economic recovery against persistent growth in the cost of services and risks from a rebounding property market.
Michl also reiterated his previous pledge that borrowing costs would remain higher than in the decade before the coronavirus pandemic, and repeated his appeal to the government to balance the state budget.
(Updates with koruna appreciation, more Michl comments.)
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