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Czech central bank raises interest rate to rein in inflation

For the fourth time this year the Czech National Bank raised its interest rate Thursday by a quarter of a percentage point to 3.5%, the central bank said.

„The hike of the rate is necessary in order to return inflation under 3% within the next two years to a level which is healthy for the Czech economy,” said Raiffeisenbank analyst Ales Michl. The country is facing inflation of some 5% next year, partly caused by rising taxes and regulated rents and partly by immense consumer spending, he said. „Our bank has seen a 150% increase in mortgages this year,” Michl said. „People have a lot of money and are putting it on the market.” While the Czech Republic”s interest rate is still the lowest in the European Union, the latest increase brought it to its highest peak since 2002.

Analysts were divided over the timing of the hike, earlier reports said. While some predicted the inflation-taming move, others said it should have been delayed as the Czech currency, the koruna, was gaining unprecedented strength. „When the koruna is extremely strong and the economy is based on exports, each strengthening hurts companies,” Michl said. „When you raise rates, you also boost the koruna.” Analysts expect the central bank to gradually keep on raising the rate in order to tame inflation. (m&