Prague - The Czech central bank Thursday decided to keep borrowing costs on hold in line with market expectations, leaving the key two-week repo rate at 3.5 per cent, the bank said.

The rate is the lowest in the European Union. It is 75 basis points higher in the 15-member eurozone.

Analysts expect the central bank to slash interest rates by year end or in early 2009 to reflect an anticipated decrease in inflation and a slowing economy.

"It will reflect the mood in the world economy which will force central banks to further cut rates," said CSOB bank analyst Jan Bures.

The central bankers cut the key rate to the current level in August in a bid to dampen the quickly-appreciating Czech koruna. The move followed a series of five hikes between May 2007 and February 2008 aimed at fending off rising prices.

The annual inflation rate remained high at 6.5 per cent in August but analysts expect it to come down to 4-per-cent levels early next year.

The export-driven economy in the ex-communist Central European country has been slowing down after expanding for three years at more than 6 per cent.

A slump in Western Europe, rising prices and the strong local currency have contributed to the change.

The US financial crisis is expected to further reduce exports to the eurozone, the chief market for Czech companies. (dpa)