Asia

Czech central bank shocks with 75 basis-point interest rate increase

FILE PHOTO: The Czech National Bank is seen in central Prague, Czech Republic, August 3, 2017. REUTERS/David W Cerny

PRAGUE (Reuters) – The Czech National Bank raised its main rate by 75 basis points on Thursday, an even heftier policy tightening than markets and analysts had expected, delivering its biggest hike since 1997 as inflation soars.

The two-week repo rate stands at 1.50% after the hike, the highest level since March 2020 when the central bank slashed its rates to support an economy hit by the first wave of the COVID-19 pandemic.

In a Reuters poll, all eight analysts had expected a 50-basis-point hike which several central bankers had flagged in public comments.

Governor Jiri Rusnok was due to comment on the decision at a press conference at 3:45 p.m. (1345 GMT), where he will also present the board’s assessment of risks to the central bank’s macroeconomic outlook.

The crown jumped by 0.5% after the announcement.

Some economists had questioned the need for significant tightening, arguing that the elevated inflation, which jumped to 4.1% year-on-year in August, is mainly driven by global rise of energy prices and supply chain disruptions, factors beyond the central bank’s reach.

Meanwhile, the world’s top central bankers saw this situation not improving anytime soon.

The Czech government has also asked rate-setters not to hike rates, fearing that monetary policy tightening might undermine the domestic economy’s recovery.

The Czech central bank is one of only two in the European Union to have started the tightening cycle, together with Hungary’s central bank. The latter slowed down its pace last week, however, when it raised its main rate by lower-than-expected 15 basis points.

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