By Robert Muller

PRAGUE (Reuters) – Czech central banker Tomas Holub said that he would likely support a 50 basis point rate increase at the next policy meeting on Sept. 30, adding to signals that the central bank could deliver its biggest hike since 1997 next week.

In a Monday interview, Holub stated that he was hawkish and suggested that the discussion on moving by 25 or 50 bps may be continued in November. In December 1997, the central bank raised its main interest rate more than 25 basis points.

Czech National Bank raised the main repo rate for two weeks by 25 base points in June. The rate was then increased by another 25 points in August.

Holub predicted that tightening monetary policy would continue well into 2022. His view is reinforced by last month’s sharp increase in inflation and other signs of price pressures.

Central Europe has faced stronger inflationary challenges than other European nations. The region’s economies have been struggling to meet demand for labour and post-pandemic goods, as well as internal factors such as rising energy prices and global supply shortages.

Holub indicated that he considered voting to increase the rate by 50 basis points last month. However, he would be more inclined to support the greater move at September’s meeting. Holub noted that the inflation forecasts for July and August were significantly out of line with Holub’s.

Holub explained that the market has “very visibly tilted” towards the need to increase rates at every meeting and also for the addition of a stronger move.

He said that it was quite possible that he would lean toward that in September.

Inflation in headlines accelerated to 4.1% per year in August. This is the highest level since 2008. The central bank forecast was almost a quarter of an inch higher and the official target for 2% doubled.

In August, producer prices rose 9.3% year on year. This was the highest growth rate since April 1993.

MAJORITY FORMING

One board member had voted for a 50 basis point hike at the last two meetings and at least two others signalled their openness for a 50 basis point move.

Holub indicated that he anticipated the ongoing debate about the magnitude of an increase to take place at the November meeting. He also said that he would be open to the possibility to add 50 basis points.

Holub stated that he would be open to a discussion if the November staff forecast shows that there is a need for one more strong step.

Holub stated, “The nominal rates are still low and real terms even lower, so I think even the November meeting debate can be about a quarter (or a whole) percentage point move.”

Many central banks across the globe have begun to tighten their monetary policies as economies recover from the COVID-19 pandemic. According to Reuters, Norway’s central banks would be likely to join the group with a September 23 rate increase.

According to forward contracts, financial markets anticipate that the Czech repo will rise by about 100 basis points this year. Holub claimed such bets weren’t irrational.

He stated, “I believe the market has generally understood the situation sufficiently.”

This year there are three additional policy meetings, the most recent being scheduled on Sept. 30,