Czech central bank unexpectedly lifts key interest rate

PRAGUE, Czech Republic – The Czech Republic’s central bank has unexpectedly raised its key interest rate by a quarter point to 1 per cent to contain inflation, driven by gains in wages.

Wednesday’s move follows a hike in February to 0.75 per cent and comes as the local currency, the koruna, has weakened against the euro. A weaker currency further pushes up inflation by increasing import prices. Last week, the koruna hit a year-low near 26 per euro.

In 2012, the central bank had cut its key interest rate to 0.05 per cent, the lowest since the country was formed in 1993 after the breakup of Czechoslovakia, to help the struggling export-oriented economy.

The bank first increased the rate to 0.25 per cent in August and has been steadily lifting it since then.