Czech central bank drastically raises key interest rate, earning criticism from PM Babiš

The seat of the Czech National Bank in Prague. (
By Lucie Ctverakova
3 Min Read

Czechia’s central bank has raised the interest rate by 1.25 percentage points to 2.75 percent, which is the highest increase since 1997.

According to Prime Minister Andrej Babiš, this decision is complete nonsense. Instead of supporting the economy, theCzech National Bank (ČNB), which is Czechia’s central bank, will allow the banks to earn more money but not prevent inflation, said Babiš. The emerging government coalition of SPOLU and PirStan considers the step a response to rising government spending.

“The ČNB only strikes another blow to the Czech economy and citizens. If it thinks that this will prevent the rise in prices of energy, emission allowances or oil, it is completely wrong,” said Babiš, noting that Chile has a similar interest rate, while the European Central Bank (ECB) keeps the rate at zero.

The reason behind the rise in rates is clearly an attempt to address increasing inflation. Five members of the Czech National Bank Board voted in favor of the decision, with two members voted to keep the rates unchanged.

Babiš was already critical of the previous rate increase at the end of September. At the time, he said that the move would damage the economy, affect households that take out loans, and worsen the financial state of all companies.

The incoming prime minister, Petr Fiala, stated that decisions on interest rates are purely within the competence of the central bank and that the government should not intervene.

According to the vice-chairman of Mayors and Independents, Věslav Michalik, who is considered a candidate for the post of the Minister of Industry and Trade, the drastic increase in rates is a clear signal that the central bank perceives inflation as a great risk.

On Thursday, the governor of the Czech National Bank, Jiří Rusnok, emphasized that the main role of the central bank is to maintain price stability.

“Even at the cost of a certain cooling of the economy, we are ready to anchor inflation expectations. We are not here to take into account a certain group, such as credit holders or exporters and importers. We are here to take care of price stability in this country. Even the most ingenious government policy will not ensure prosperity if there is no price stability,” he said.

“Raising the interest rate by 1.25 percentage points to 2.75 percent will have a significant impact on investment and business activity, household demand, the real estate market, and many other segments of our economy. It is a step that will certainly not contribute to the growth of our economy, which is not good news, especially in a time of fragile recovery,” commented current Minister of Finance Alena Schillerová.

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