The Council of the Czech National Bank (CNB) has raised interest rates sharply. The key interest rate (the so-called repo rate) was increased by 0.75 percentage point.

This is the highest increase done in a single meeting in the last quarter century. The reason for this significant intervention is strong inflationary pressure. In August, inflation in the Czech Republic reached 4.1 percent, while the aim is to return it to the 2 percent limit. According to the governor of the CNB, the reason for the expansionary policy has now passed and, on the contrary, interest rates need to be returned to the original level.

The basic rate affects the interest rate on consumer loans. It is therefore possible to expect a further rise in interest rates on mortgage loans. Higher rates may reduce the volume of new loans, which was a record in the first half of the year, due to the low interest rates. The increase in rates will be reflected not only in newly agreed loans, but also in older loans, for which the period of fixation ends and will have to be refinanced with a new interest rate.