Thursday, November 29, 2007

Czech Inflation forces central bank to act

Central bank starts to raise interest rates....

PRAGUE, Nov 29 (Reuters) - The Czech central bank (CNB) raised interest rates by 25 basis points on Thursday, resuming its policy tightening after a two-month pause to clamp down on resurgent inflation in the strong central European economy.

Price pressures have been building in central Europe's booming economies, and the threat of a spillover of rising Prices for food and energy into higher inflation and wage expectations spurred central bankers into action.

The Czech economy has been growing at about 6 percent for the third year and Thursday's Reuters poll forecast November inflation rate at a six-year high of 4.5 percent, versus the CNB's 3 percent target with plus/minus 1 percent comfort zone. The outlook is for inflation to leap early next year towards 6 percent, due mainly to a sales tax rise and regulated price hikes, factors which monetary policy can do nothing to contain.