The ČNB increased the repo interest rate by a quarter point to 2.25 percent July 27.

"Although the economy is still in good condition, there were some apparent inflationary pressures that we had to take into account," ČNB Governor Zdeněk Tůma said, adding that future development of interest rates is more uncertain now than ever before.

The hike should reduce inflation and could strengthen the crown against the euro. It will also make loans more expensive.

As a result, the country's rapidly growing household debt, which reached 379.5 billion Kč ($17.1 billion) last year, could start to fall.

Mortgages in particular have been on the rise because interest rates have remained so low for so long. The ČNB cut rates three times last year. They eventually reached a record low 1.75 percent, before the bank raised them a quarter point in October.

On July 27, four of the seven board members voted for raising rates, which were the lowest in the European Union. The others were in favor of keeping them at 2.0 percent.

When announcing the hike, the ČNB also updated its macroeconomic outlook for this year. According to the central bank's predictions, the rapidly growing economy and household consumption should boost gross domestic product (GDP) growth to between 6 percent and 7.2 percent this year. It should be between 3.8 percent and 6.4 percent in 2007.

The ČNB also raised its inflation forecast to between 2.8 percent and 4.2 percent for June 2007 and 3.3 percent to 4.7 percent for September 2007.

While most economists and bankers agreed that the ČNB will pay close attention to inflation when considering future movement of rates, there was no consensus on the bank's inflation projections.

Vladimír Pikora, an economist at Next Finance, said the ČNB's predictions are too pessimistic.

"I think inflation will be just under 3 percent within a year," Pikora said, adding that the ČNB shouldn't have to change rates for several months because the crown is likely to strengthen.

Aleš Michl, an analyst at Raiffeisenbank, is also more optimistic about inflation.

"A gradual growth in interest rates will bring inflation to 2.7 percent by the end of 2007," he said.

HVB Bank Chief Economist Pavel Sobíšek said, however, it would not take another nine months for the central bank to put forward another hike. And Radomír Jáč, an analyst at PPF, said one could come by the end of this year.

"We think the European Central Bank will increase rates [from the current 3 percent] to 3.5 percent by the end of 2006, and the ČNB will not want to see a gap between interest rates on the euro and the crown of more than 0.75 percentage points," Jáč said.