- Decision
- Lower
- Rate change
- 25 bps
- two-week repo rate
- 3.75%
The Bank Board of the Czech National Bank (CNB) cut the two-week repo rate by 25 bp to 3.75 % and lowered its other key rates by the same margin, citing subdued external demand, contained short-term inflation risks and a new forecast that points to only a “modest” further decline in rates before they stabilise from mid-2025. The policy stance remains “significantly” positive in real terms and continues to restrain credit and money creation, although rising government borrowing is working in the opposite direction. The economy expanded 0.5 % q/q and 1.6 % y/y in 2024 Q4, with recovery driven by household consumption amid still-elevated 7 % wage growth and easing labour-market tightness, while weak European industry is weighing on exports. The central bank’s baseline sees inflation at 2.4 % in 2025 and 2.1 % in 2026, with January’s flash data suggesting slight upside risk; GDP is projected to grow 2 % this year and 2.4 % next year. External demand weakness, especially from Germany, is flagged as a key disinflationary threat, whereas stickier services and food prices, higher fiscal spending and stronger wage pressures pose upside risks. Policymakers reiterated that further easing will proceed “with great caution” and that rates may need to stay “slightly restrictive” for longer than envisioned to secure durable convergence to the 2 % inflation target.
Rate evolution
The Czech National Bank lowered the two-week repo rate by 25 basis points to 3.5%, held it in December and again in March and May 2026, raised it by 25 basis points to 3.75% on 18 June, and kept it unchanged on 6 August and 17 September, when all seven members backed the hold. It said easing room was limited because domestic inflation pressures persisted even with inflation near or within the tolerance band around the 2% target, citing elevated core and services inflation, strong wage growth, a tight labour market, firmer household consumption, rising property prices and strengthening credit and money growth, while weak external demand, trade barriers and geopolitics clouded activity. Across the December, March and May holds, the Bank Board continued to describe policy as relatively tight, while its risk assessment moved from modestly inflationary overall to inflationary overall and then balanced overall as domestic upside risks were increasingly offset by a stronger koruna, weak euro area activity and the risk of a global asset-price correction.
In June, the Bank Board returned the risk assessment to inflationary overall and said the increase would help lower core inflation and maintain a low-inflation environment, while on 6 August it judged that the move had delivered the desired tightening of monetary conditions and shifted to assessing incoming data, the outlook, inflationary risks and the effects of policy restriction as core inflation remained just below 3% without a significant downward tendency for eight months. On 17 September, it said the June increase had so far sufficiently tightened monetary conditions and that higher longer-term interest rates had also tightened financial conditions, although core inflation remained elevated and the upside risk from commodity market developments had intensified. The Bank Board again assessed risks as inflationary overall, citing persistent core and services inflation, credit growth and debt-financed public spending, rapid wage growth, a tight labour market and property prices, while weak euro area activity and a possible global asset-price correction could have an anti-inflationary effect, and said continued tight monetary policy was needed, with its next decision to be between holding the policy rate and raising it.