Czech policymakers face a tough decision on whether to raise interest rates next month, weighing a response to global pressures without adding fuel to a robust jump in market borrowing costs, according to a deputy central bank governor.

After the first hike in four years in June, central bankers in Prague will discuss whether to tighten policy again on Nov. 5. While the domestic factors that triggered the previous increase still exist, albeit “slightly softer,” the debate will likely center on intensified risks from higher energy costs, Jan Frait said.

The arguments for raising the benchmark are “relatively strong,” but officials also have to consider how higher market rates are tightening financing conditions and their impact on the real economy, Frait said in an interview on Wednesday. The situation can still change before the meeting and the outcome isn’t a “done deal” yet.

“It’s clear we will discuss whether to increase rates or not, but very carefully, because there are also factors against it,” he said. “The debate will be probably mainly about inflationary pressures from the global economy and the geopolitical situation. And we will weigh how much the developments in financial markets are mitigating these potential external inflationary pressures.”Czech inflation breached the 2% target last month, with the closely watched core measure rising to 3.1%. That, combined with a fresh spike in prices for oil and natural gas, has prompted some analysts to revise their outlook for rates and predict a quarter-point hike to 4% in November.

Still, Frait said that relatively high short-term rates and long-term market rates are delivering restrictive financing conditions and may be an anti-inflationary factor down the line. The three-year swap rate, a benchmark for mortgages, has increased by about 150 basis points since the start of the Iran war, trading near 4.9% this week.

The latest data still show relatively strong credit activity, although there are some early signs of slowing dynamics in new mortgages, Frait said. Higher market rates may further curb housing loans, even as corporate lending, both investments and operating credit, remains quite robust and is a reason for continued caution.

“As much as we can’t and we will not ignore energy prices, we should avoid adding more fuel to what already looks like excessive increases in longer market rates in the domestic economy,” said Frait, pushing back against market bets on aggressive hikes over the next year.

The risks from potentially waiting for a bit longer aren’t very strong, because short-term and long-term rates are already quite high and their effect, in combination with the still strong koruna, is anti-inflationary, according to the deputy governor.

“I don’t think we are facing the risk of making a major immediate error,” he said. “But if we see that lending activity isn’t slowing, domestic demand remains strong and wage demands are growing, of course we will have to react.”The central bank also needs to assess market expectations for rates abroad, especially in major economies, because they may affect the koruna’s exchange rate. A strong currency is having an anti-inflationary effect, but it “doesn’t make sense” to try to strengthen the koruna further via the interest rate differential “at any cost,” Frait said.

Market pricing showing four 25 basis-point rate hikes over the next 12 months “is a little bit of a mystery” and it doesn’t necessarily reflect true expectations about where the policy rate will be, he said. Rather, the pricing could be partially related to some liquidity issues in the market or to mechanical application of outcomes of some analytical models.

“I don’t see reasons for 100 basis points, at least for now,” Frait said. “If the economy remains in a favorable mode, stays relatively strong and resilient, and at the same time global inflation pressures persist, even 50 basis points would be a little bit abrupt for me.”