Exporters complain about strong crown, Central Bank cuts interest rates

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In a surprise move, the Czech National Bank cut all key interest rates by 50 basic points last Thursday. The Central bank's board decided to reduce the repo rate to 3.75 percent, the discount rate to 2.75 percent and the Lombard rate to 4.75 percent.

In a surprise move, the Czech National Bank cut all key interest rates by 50 basic points last Thursday. The Central bank's board decided to reduce the repo rate to 3.75 percent, the discount rate to 2.75 percent and the Lombard rate to 4.75 percent.

The decision came as a surprise since the Central bank had repeatedly said there had been no reason to reduce interest rates. According to some experts, it even casts doubt on the bank's independence since it apparently reacted to pressures from Czech exporters. About two hundred Czech exporters sent an appeal to the government, the Central Bank and parliament to help prevent further strengthening of the Czech crown. One of the measures they demanded was a cut of the interest rates.

But what are the main problems connected with appreciation of the currency? Martin Tlapa, the head of the Czech government export-support agency CzechTrade, is convinced that it creates enormous pressure on Czech producers to increase productivity - pressure they are on longer able to sustain.