Czech central banker: we may consider rate cut in Q3 but uncertainties high -DenikN


PRAGUE, Feb 20 (Reuters) - The Czech central bank board may consider lowering interest rates sometime in the third quarter if the economy develops as expected, central bank Vice-Governor Jan Frait said in an interview for daily Monday's DenikN.

Frait said that no rate cuts would be discussed that the bank's two upcoming meetings in March and May.

"At this point, a discussion about reducing rates is not appropriate yet," Frait said.

"If we see that the economy actually develops in line with our forecast, sometime in the third quarter of the year, we will consider whether we can cut rates. But as I say, for me it is already a fairly distant horizon in which the uncertainty is huge."

Frait reiterated that interest rates would however stay "relatively high" for a longer period, after policy being too loose in the past years.

He said the real estate market was one of the factors the bank would watch when lowering rates to avoid a new price increase spiral.

Under new Governor Ales Michl, the Czech central bank stopped a cycle of hikes that brought the main repo rate to 7% in June last year, although the bank's forecasts have assumed more hikes in the near term.

Instead, it has opted for stability, and held that view even as inflation reached 17.5% in January.

The bank has been criticised by some private-sector analysts for not raising interest rates more to quell the price growth.

The International Monetary Fund has also advised to tighten policy, which Frait rejected, saying the IMF had often made recommendations in the past that later proved wrong.

Frait said a return of inflation to 2% target next year could be hampered if energy prices jump again, if global central banks started loosening policy, or if a wage-inflation spiral emerges in the Czech economy.

(Reporting by Jan Lopatka)

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