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

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FILE PHOTO: The Czech National Bank is seen in Central Prague, Czech Republic on August 3, 2017. Businesshala/David W. Cerny
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PRAGUE (Businesshala) – The Czech National Bank raised its key rate by 75 basis points on Thursday, after markets and analysts alike expected policy tightening, its biggest increase since 1997 after rising inflation .

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

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In a Businesshala poll, all eight analysts had expected a 50-basis-point increase, which was flagged in public comments by several central bankers.

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

The crown jumped 0.5% after the announcement.

Some economists had questioned the need for significant tightening, arguing that increased inflation, which rose year-on-year to 4.1% in August, was primarily driven by a global rise in energy prices and supply chain disruptions, central Driven by factors beyond the reach of the bank.

Meanwhile, the world’s top central bankers see the situation not improving any time soon.

The Czech government has also asked rate-setters not to hike rates, fearing a tightening of monetary policy could undermine the recovery of the domestic economy.

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

Reporting by Jan Lopatka and Robert Mueller; Editing by Francis Carey

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