The Czech National Bank (ČNB) raised its benchmark interest rate by 0.75 percentage points to 4.5 percent. This is the highest since January 2002. The central bank announced on its website. By raising rates, it continues to fight rising inflation.
The 0.75 percentage point increase is in line with analysts’ expectations.
“This should be the last extraordinary increase, which started in September last year (also by 0.75 percentage point) after the traditional Thursday hikes in August and June. The ČNB should now change interest rates in rather smaller steps. In general, however, ČNB officials are fairly unanimous in suggesting that rates should not rise above 5 percent, ” said Jakub Seidler, the Czech Banking Association chief economist.
The reason for the rate hike is the continued rise in inflation and the central bank’s related efforts to dampen inflation expectations, which means that inflation will continue to rise rapidly. In the new forecast, economists expect a particular increase in the estimate of this year’s average inflation rate to eight percent. The bank calculated an average inflation rate of 5.6 percent this year in November.
Interest rates on bank deposits and loans are based on central bank rates. Higher interest rates make loans for investments and operations more expensive for businesses, while households get more costly loans for housing.