April 24, 2018 / 7:51 AM / in a year

UPDATE 1-Czech central banker Mora: crown strengthening slower than expected

(Adds quotes, details)

PRAGUE, April 24 (Reuters) - The Czech crown has strengthened more slowly than expected, and if the trend continues, there could be more room to raise interest rates, Czech National Bank (CNB) board member Marek Mora was quoted as saying on Tuesday.

The central bank has raised its main interest rate in three steps to 0.75 percent since last August and the market expects more tightening in the second half of this year.

The CNB’s staff forecasts, on the other hand, see another rate hike only around the turn of the year and maybe even later, as the projected crown strengthening should deliver part of the tightening desired to cool the fast-growing economy.

“It seems that the crown has been strengthening a bit slower than we anticipated,” Mora said in an interview for the paper E15.

“If the crown keeps strengthening at a slower pace, that would give us room to raise rates, if all other conditions remain unchanged,” he said.

The CNB forecasts the average crown rate at 25.400 per euro in the first quarter, appreciating further to 24.900 in the second quarter.

The next monetary policy meeting is scheduled for May 3, when the seven-member board will debate a quarterly update to the macroeconomic outlook prepared by CNB staff. The central bank last raised the two-week repo rate in February.

Mora indicated that the CNB was keeping one eye on ECB rates as it considered how much to raise its own rates.

“Widening the differential could lead to an excessive crown strengthening, which would block us from further raising rates,” he said.

Mora also told the paper that the central bank was considering making two new recommendations to banks on mortgages - on limits for the debt-to-income ratio and debt-servicing-to-income - while it waits for a bill putting the limits into law to make its way through parliament in the next few months.

A mortgage should not exceed eight times the annual salary of the applicant, while debt payments should remain below 40 percent of a disposable monthly income, Mora said. (Reporting by Robert Muller; Editing by Kevin Liffey)

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