Nov. 19 (Bloomberg) -- The Czech koruna's climb to a record against the euro is ``unsustainable,'' though monetary policy makers must take the currency gains into consideration when setting interest rates, central bank Governor Zdenek Tuma said.

``In the open economy of the Czech Republic, the exchange rate is important and the pass-through on inflation is relatively strong,'' Tuma said in an interview in Cape Town yesterday. ``I always warn against panic regarding exchange-rate developments, but nevertheless this is very strong appreciation'' and ``we cannot ignore it.''

The koruna is the world's best-performing currency against the euro in the past month and has risen 2.6 percent in the period. The currency's surge has prompted policy makers to put off a fourth rate increase this year even after economic growth helped push inflation in October to the highest since 2001.

The koruna was at 26.65 against the euro as of 9:33 a.m. in Prague, unchanged from Nov. 16. It reached a record 26.50 per euro on Nov. 12 and climbed to an all-time high of 18.08 against the dollar on Nov. 15. The koruna has gained 14.4 percent against the dollar this year, helping to counter the effect of record oil prices.

`Unsustainable'

``By definition this pace of appreciation is unsustainable,'' Tuma said on the sidelines of a meeting of central bankers from around the world. ``That is clear.''

The Czech 3.25 percent benchmark rate is the lowest in the European Union. Tuma said the currency's gain was one of the factors that prompted the central bank's seven-member board to keep the rate unchanged at its last meeting on Oct. 25.

The koruna's exchange rate will ``stabilize,'' Tuma said. ``The only question is whether we can expect moderate correction and some stability or just that stability at new levels.''

The central bank predicts a temporary surge in the inflation rate to as high as 5.1 percent in 2008 on one-time increases in indirect taxes and utility costs, surpassing its 3 percent target plus or minus a percentage point. It expects consumer-price growth to slow again in the next 12 months, Tuma said.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net; Marketa Fiserova in Prague mfiserova@bloomberg.net

Last Updated: November 19, 2007 04:07 EST