PRAGUE (Reuters) - The Czech central bank is in no rush to tighten policy and should only move when it is sure it will not have to undo what will be its first rate hike in almost a decade, board member Vojtech Benda said on Monday.
The Czech National Bank made an initial tightening move on April 6, when it dropped a cap on the crown currency's exchange rate after using the weak crown for 3-1/2 years as a tool to revive inflation.
The next step will be moving the main interest rate, the two-week repo rate, from the 0.05 percent floor it has sat at since 2012. The EU member country saw its last interest rate tightening in 2008, before the global financial crisis and two domestic recessions.
The bank's quarterly staff forecast assumes the first hike in the third quarter, as the economy grows and Europe's tightest labor market pushes up wages and prices.Benda said the bank would tighten rates in the coming year but he also wanted to wait a few months before he makes up his mind on the timing.
"We need to let the dust settle a little bit," he said.
"I am against us making hasty steps that would lead to interest rates going up and then having to go lower again," Benda said in an interview at the Reuters Central & Eastern Europe Investment Summit.
"Interest rate growth should come at the moment when we know that we will continue in that at some pace in the coming periods."
Benda said rate increases would in part depend on the path of the crown in the coming months. More crown firming would mean fewer hikes but hikes are coming anyway, he said.
The currency had been tipped by many investors to jump after being floated. But long positions built up by investors and exporters, estimated at tens of billions of euros, have helped keep a check on the rate.
The crown has only firmed by 1.7 percent to 26.55 to the euro by Monday.
Benda said he would not raise his hand for a rate increase before the end of the second quarter.
"The third quarter may be key, we will be looking how (the economy) evolves through the summer holidays, then it will show if it is needed to raise (rates) at the end of the year or it can be left for the first quarter (of 2018)," he said.
"I am convinced that within one year, we will be visibly higher with rates. I am not saying by how much, but we will not be at zero lower bound."
Benda said a continued ultra-loose policy of the European Central Bank was not a major brake preventing Czech rates form going up.
The ECB's policy did mean there would be a bigger interest rate differential, but the loose monetary conditions in the euro zone also produced inflationary effects for the Czech economy, he said.
He said the Czech economy has only recently closed its output gap. Growth jumped to 2.9 percent year-on-year in the first quarter.
Inflation has dropped to 2.0 percent in April, the bank's target. The bank's forecast sees it picking up to 2.6 percent in the third quarter before dipping again to 2.1 percent a year ahead.
Higher rates would also come in line with the bank's steps to cool an overpriced housing market, Benda said.
Editing by Tom Heneghan