Prague  - The Czech central bank cut the key two-week repo rate by a quarter point to 3.5 per cent Thursday despite high inflation in order to halt a rapid appreciation of the Czech koruna.

"The bank is fighting against the world's most appreciating currency," said Raiffeisenbank analyst Ales Michl. "It is so important for the bank to risk inflation."

The central bankers had hiked the key rate five times between May 2007 and February 2008 to fend off growing prices but have lately signaled intention to take a reverse step aimed at cooling the strong Czech currency.

The koruna, which had ventured under the psychological threshold of 23 koruny per euro in July, weakened to 24.09 koruny per euro after the Thursday announcement, according to the Patria Online brokerage.

The decision has pleased exporters, who form a backbone of the Czech economy and have called for measures that would halt the koruna's firming ride as the strong currency has caused their sales and profits shrink.

The koruna has appreciated 17 per cent to the euro and 31.4 per cent to the dollar in the last 12 months.

At the same time the Czech economy has been troubled this year by rising consumer prices. The year-on-year inflation rate was 6.7 per cent in June, compared to 4 per cent in the 15 European states using the euro.

The Czech Republic's borrowing costs remain the lowest in the European Union. The eurozone's key rate is 4.25 per cent.

The six members of a seven-member central bank board attending the monetary meeting Thursday also slashed the discount rate to 2.5 per cent and the Lombard rate to
4.5 per cent. (dpa)