PRAGUE, Sept 19 (Reuters) - Czech Finance Minister Alena Schillerova said on Sunday she had warned the central bank against sharp rises in interest rates, prompting a swift reply from the bank's governor, who said further increases were needed.
The Czech National Bank is one of the first in the European Union to begin tightening monetary policy amid strong inflationary pressures. It has raised its base rate twice since June.
Markets are speculating that the bank could accelerate the cycle of rate hikes when it meets again at the end of September.
Schillerova said in a debate show on Czech television that she had warned about the risks of higher borrowing costs when she visited the bank's last rate meeting in August.
"Rate rises have been slight so far. I went there to warn that they don't rise sharply," she said. "I argued mainly against making loans more expensive for businesses, for people."
Schillerova and Prime Minister Andrej Babis, whose ANO party is gearing up for a national election next month, have said economic outlooks point to inflation falling next year.
Babis also urged the bank last week to refrain from rate hikes that could damage companies and people.
The Czech central bank is independent by law and does not take instruction from politicians.
INFLATION
Responding to Schillerova's comments on Sunday, Governor Jiri Rusnok said the bank was determined to strengthen firms' and people's expectations that inflation would return to the 2% target in 2022. He said rates still remained deeply negative once inflation has been factored in.
"It is therefore necessary to continue their (interest rates') return to a positive level," Rusnok said.
Czech headline inflation exceeded 4% in August for the first time since 2008, driven by both external factors such as higher energy costs and domestic reasons like a tight labour market and pent-up demand after an easing of coronavirus restrictions.
The central bank has so far delivered two 25-basis-point hikes to bring its key two-week repo rate to 0.75%. It is debating now whether a 50 basis point rise may be needed. (Reporting by Jason Hovet Editing by Gareth Jones)
