Prague - The Czech National Bank (CNB) cut its interest rates to a new historical low.
The base interest rate - which influences market rates - decreased from 0.75 to 0.5 percent.
Four of the seven members of the central bank's board voted in favor of the rate cut.
With its latest step, the CNB ended a two-year period in which the rates stayed at the same level, and it was expected that they would rise.
However, the economic stagnation and deepening problems in Europe have weakened foreign and domestic demand, which caused a drop in Czech GDP. The CNB board reacted by cutting its base rate.
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"Inflation has already peaked"
"Inflation stays high at 3.2 percent, due to administrative changes, but it has already peaked" said Citfin analyst Jiri Simek, explaining why the CNB felt no need to quell inflation with higher interest rates.
The last change of the base rate took place in 2010, when it was cut from 1 to 0.75 percent.
Raiffeisenbank's chief analyst Michal Brozka said that lower interest rates weaken the Czech crown, which helps Czech exporters and producers.
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The CNB's Lombard rate dropped from 1.75 to 0.5 percent, while the overnight discount rate stayed at 0.25 percent.
Global trend
The CNB is far from being the only central bank that keeps the rates at record lows. At the end of 2011, the European Central Bank (ECB) cut its base rate to a new historical low of one percent.
The US FED as well as Switzerland keep the rates between zero and 0.25 percent.
However, Poland increased its base rate to 4.75 percent in May. The Polish economy is growing and the inflation rate is over 4 percent.
