(Bloomberg) — The Czech Republic surprised with another larger-than-expected interest-rate increase, pushing forward with an aggressive campaign to rein in spiraling inflation.
The central bank lifted the benchmark rate by a full percentage point to 3.75% on Wednesday, more than the median estimate for a 75 basis-point increase in a Bloomberg survey. The move brings the cumulative hikes to 3.5 percentage points since June, and follows a shocking 1.25 percentage-point increase last month.
Governor Jiri Rusnok will comment on the rate decision at a news conference scheduled for 3:45 p.m. The koruna bucked regional weakness and gained against the euro after the decision.
Since the previous meeting, inflation accelerated to 6% in November, the highest in 13 years, while factory-gate prices rose at the quickest pace in three decades. The bank is worried about rapid price growth triggering bigger wage demands — the Czech Republic has the lowest jobless rate in the EU — which would entrench high inflation for longer.
“The majority of the bank board clearly felt the need for a strong reaction to growing inflation risks in the Czech economy,” said Radomir Jac, chief economist at Generali Investments CEE in Prague. “At the same time, the repo rate is probably approaching its peak, which could be in the area of 4%.”
Czech policy makers were among the world’s first to challenge the view that inflation was transitory, even as they acknowledged that some global drivers, like broken supply chains and higher commodity prices, will ease over time.
Along with Hungary, the Czechs were the EU’s front-runners in raising borrowing costs in June. Since then rate setters in Prague have tried to tackle home-grown pressures fueled by a severe labor shortage and spiraling property prices.
Rusnok said last week that rates will probably peak near 4% next year, where they should stabilize for some time before the central bank can start considering reversing direction.
The koruna gained 0.2% to 25.18 to the euro as of 2:45 p.m., outperforming all peers in eastern Europe.
(Updates with market reaction in third paragraph, analyst comment in fifth.)
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