Czech Republic Interest Rate

Central Bank leaves rates unchanged in May

Unanimous hold aligns with market views: At its meeting on 7 May, the Central Bank (CNB) left the two-week repo rate at 3.50%. The decision was unanimous and aligned with market expectations.

Bank keeps monetary stance tight to maintain inflation within target: The Bank abstained from a rate cut as it expects inflation to remain in the upper half of the 1.0–3.0% tolerance band in the remainder of 2026. The Iran war has pushed up fuel prices, and core inflation remains elevated as growth in credit and wages bolsters household consumption. In this context, the Bank assessed that maintaining a tight monetary stance was necessary; nominal interest rates currently exceed the rate of inflation. At the same time, within-target inflation projections as well as GDP growth slowing in Q1 2026 from the prior quarter likely dissuaded the Bank from a rate hike.

Rates likely to end 2026 at current levels: The CNB’s latest forecasts are for about 50 basis points of rate hikes this year, followed by a roughly same-sized cut in 2027. While these projections do not bind the Bank’s policy decisions, they signal a hawkish stance. For now, virtually all panelists see the CNB remaining on hold this year. Our Consensus is for inflation to average close to the 2.0% target range midpoint in 2026, which should dissuade the CNB from raising its policy rate. GDP growth is also seen near 2025’s rate, proving resilient in the face of the Iran war and likely deeming a rate cut unnecessary. Still, a minority of our panelists sees 25–50 basis points of either cuts or hikes by year-end. The Bank is set to reconvene on 25 June.

Panelist insight: ING’s Frantisek Taborsky commented on the outlook: “It remains difficult to see the CNB hiking rates with headline inflation close to target. Our baseline is for rates to be kept unchanged for an extended period, but we see inflation slightly higher in our forecast than the CNB, which will test the board's resolve as we look further ahead.” Erste Bank’s Jiri Polansky said: “If the situation in the Middle East were to gradually calm in the coming weeks, through some form of agreement, the reopening of the Strait of Hormuz, and a partial correction in commodity prices, the CNB could lean toward keeping interest rates unchanged. If, however, the conflict were to be prolonged, either through escalation or a long-term closure of shipping routes, the risk of inflationary pressures spilling over into other parts of the economy and of rising core inflation would increase significantly. In such a scenario, the CNB would likely be ‘forced’ to raise interest rates. We see the probabilities of both outcomes as broadly similar, although we continue to lean slightly toward rate stability for the remainder of this year.”

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