The Czech central bank raised its main interest rate by 75 basis points on Thursday, tightening policy more than markets and analysts had expected and raising interest rates for the biggest time since 1997 against the backdrop of soaring inflation.
In previous surveys, eight analysts expected the bank to raise interest rates by 50 basis points after several central bankers mentioned the extent of the rate hike in public comments. The krona rose 0.5% after the news was announced.
After the rate hike, the two-week repo rate remained at 1.50 per cent, the highest level since March 2020. In March 2020, the Czech central bank slashed interest rates to support an economy hit by the first wave of the COVID-19 epidemic.
Some economists have questioned the need for substantial monetary tightening, arguing that the rise in inflation is mainly driven by rising global energy prices and supply chain disruptions, which are beyond the reach of central banks. Inflation jumped to 4.1 per cent in August from a year earlier. At the same time, major central bankers around the world do not think the situation will improve any time soon.
The Czech government has also asked interest rate makers not to raise interest rates, fearing that tighter monetary policy could undermine the domestic economic recovery. The Czech central bank is one of only two central banks in the European Union to start the tightening cycle, and the other two are the central banks of Hungary. However, the bank slowed the pace of rate hikes last week, raising its main interest rate by 15 basis points, lower than expected