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Higher Czech rates now would not mean faster cuts later, Zamrazilova says

The Czech National Bank is seen in central Prague

PRAGUE (Reuters) -The Czech Central Bank would not be able to cut interest rates any faster if it raised rates now, Vice Governor Eva Zamrazilova said in an interview on Monday.

The central bank has held steady on interest rates for more than half a year, following a sharp year-long hiking cycle that raised the base rate by 675 basis points to 7.00%.

The bank, while not completely taking chances of a hike off table, has preferred stable policy, especially with a crown currency trading at more than 14-year highs.

Zamrazilova has voted in the majority for steady rates, while a minority on the board have supported tightening. The bank's own outlook and observers like the International Monetary Fund have said more tightening would help tame price growth faster.

"I do not believe the view in which the higher we go with the rate now, the faster we will be able to lower rates afterward," she told news website

"The reason is simple: the level of inflation in the Czech Republic will in the future depend on the course of the disinflation process in the euro zone."

Central bankers have said rates must remain higher for a longer period of time as the bank seeks to control inflation which surged into double digits, hitting 17.5% in January.

Zamrazilova told that the strengthening of the crown was equivalent to a 75 basis-point increase in rates, saying tightening through the exchange rate channel was more effective.

She also said nominal wage growth of 6-8% in 2023 and below 6% in 2024 would be acceptable and not indicate a wage-inflation spiral forming.

But she also said she worried the economy would continue importing inflation pressures due to the European Central Bank's insufficient policy tightening.

"And because of this we will have to live with higher rates for longer," she said. "And that is why I don't want to raise rates: if we are to live with them for longer, I don't want them to be that high."

(Reporting by Jason Hovet,Editing by Bernadette Baum and Ed Osmond)