2021.06.2315:14:00UTC+00Czech Central Bank Raises Rates

The Czech central bank raised its key interest rate for the first time in one-and-a-half years on Wednesday, in a bid to keep inflation within its target in coming months as the economy reopens and recovers from the coronavirus pandemic.

The board increased the two-week repo rate by 25 basis points to 0.50 percent, the Czech National Bank said in a statement. The previous change in the rate was a 75 basis points reduction in May 2020 at the peak of the coronavirus pandemic.

The latest hike was the first since a quarter-point raise in February 2020. After the coronavirus spread and country went into lockdown, the central bank reduced the rate by a cumulative 200 basis points last year.

Policymakers increased the Lombard rate by 25 basis points to 1.25 percent and kept the discount rate unchanged at 0.05 percent. Capital Economics thinks that the latest hike from CNB marks the start of what will be the most aggressive tightening cycle in Europe. "We expect that the policy rate will be lifted to 2.25 percent by end-2023," Capital Economics economist Liam Peach said. "Provided that economic activity continues to recover, the output gap closes, and inflation looks set to remain at or above the CNB's 2 percent target, we think the tightening cycle will consist of 25 basis point of rate hikes per quarter, taking the policy rate to 1.75 percent by end-2022 and then to 2.25 percent by mid-2023, the economist added.