- Decision
- Lower
- Rate change
- 25 bps
- two-week repo rate
- 3.5%
The Bank Board of the Czech National Bank (CNB) cut the two-week repo rate by 25 bp to 3.50 % and lowered its other key rates in tandem, saying inflation has stayed within the 2 % ±1 pp tolerance band since January 2024 and global commodity prices and growth prospects have softened, yet domestic services inflation, rapid wage gains and rising property prices continue to threaten long-run price stability, warranting only a “very cautious” move that keeps monetary policy firmly restrictive with real rates “distinctly positive.” After starting its easing cycle from 7 % in December 2023, the CNB trimmed the policy rate by 25 bp in February, paused in March and has now reduced it to 3.50 %. The new forecast sees inflation averaging 2.5 % in 2025 and easing to 2.2 % in 2026, while April’s flash CPI slipped to 1.8 %; Q1 GDP grew 0.5 % q/q and 2 % y/y, driven by household consumption, but wage growth remained high at 8.3 % y/y in 2024 Q4, underpinning sticky services prices. Subdued external demand, especially from European industry, and sharply lower global commodity prices are tempering price pressures, yet tighter global financial conditions and uncertain trade barriers cloud the outlook. The board reiterated that policy must stay “relatively tight,” will weigh data on inflation persistence, koruna moves, fiscal stance, labour-market tightness and foreign central-bank actions, and signalled limited scope for further easing unless domestic inflation pressures recede.
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.