In a Bloomberg interview, Czech National Bank Deputy Governor Jan Frait described relatively strong arguments for another interest rate increase on Nov. 5, while emphasizing that higher market borrowing costs could reduce the need for further tightening. The decision remains open, with policymakers weighing inflationary pressures from energy prices and geopolitical developments against the restrictive effects of existing interest rates and a strong koruna. The domestic pressures behind June’s rate increase, the first in four years, persist but have softened slightly. Inflation exceeded the 2% target in September, with core inflation reaching 3.1%, while oil and natural gas prices have risen again. However, the three-year swap rate, a benchmark for mortgages, has climbed about 150 basis points since the start of the Iran war to around 4.9%. Higher market rates could further restrain housing loans, where early signs of slowing new mortgage activity are emerging. Corporate borrowing for investment and operations remains robust, supporting continued caution. Frait assessed the risks of waiting somewhat longer as limited because financing conditions and the koruna already exert an anti-inflationary effect. Further action would be warranted if lending failed to slow, domestic demand stayed strong and wage demands increased. He questioned market pricing for four 25-basis-point increases over the next 12 months, seeing no current justification for 100 basis points of tightening. Even 50 basis points would appear somewhat abrupt to him if the economy remained relatively strong and global inflation pressures persisted.

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