Czech central bank vice-gov says Ukraine crisis will have inflationary effect

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PRAGUE – The crisis around Ukraine will have an inflationary effect on the Czech economy via higher energy prices, the central bank vice-governor Tomas Nidetzky was quoted as saying on Thursday.

Nidetzky told the Pravo daily paper that the heightened geopolitical uncertainty would also spur risk-aversion, which in turn will weaken currencies like the Czech crown.

On the Czech central bank’s interest rates, Nidetzky said they could still rise.

“I can imagine that there still will be some moderate tuning (of rates),” Nidetzky said in the interview.

“Then it will rather be about how long the interest rates will remain at higher level, and when we will start debating that we would start cutting them towards some neutral equilibrium around 3%,” he said.

The Czech National Bank has lifted its key two-week repo rate by 425 basis points to a 20-year high of 4.50% since last June. That has included 375 basis points worth of hikes at the last four meetings.

The bank, the most aggressive among central European peers in tackling sharp price growth, has signaled a slowdown in its tightening even as inflation soared to 9.9% in January.

Nidetzky said that the Ukraine-Russia crisis was creating more uncertainty.

“When I take a look from our entirely economic point of view, I see (the crisis) as an uncertainty, which will have an inflationary impact overall,” he said.

“This conflict will prop up inflation mainly via higher gas and oil prices, and subsequently of other energies.”

(Reporting by Robert Muller; Editing by Sam Holmes)