Central Bank stands pat in September

Bank leaves repo rate unchanged: On 24 September, the Czech National Bank (CNB) opted to keep its two-week repo rate unchanged at 3.50%—the lowest level since late 2021—for a third straight meeting, in line with market expectations. The decision was unanimous.

Upside inflationary risks stall rate cuts: The decision to stand pat was justified by the need to stabilize headline inflation near its 2.0% target in the long run. The CNB assessed current risks to be inflationary, including rising real wages and even faster increases in living costs.

Bank likely to stand pat through year-end: While the CNB did not provide explicit forward guidance regarding future decisions, a majority of our panelists expect the CNB to stand pat through to the end of 2025; the rest have penciled in a final reduction of 25 basis points this year. Future decisions will hinge on the strength of the koruna going forward. Potential downside risks to the rate outlook include a stronger-than-expected koruna and weaker economic growth abroad, especially in the Czech Republic’s top trading partner, Germany. The Bank will reconvene on 6 November.

Panelist insight: Commenting on the outlook, David Havrlant, chief economist at ING, stated: “Czech headline inflation reached a low point in August, dragged down by monthly food and fuel price declines. Meanwhile, core inflation remained elevated, reinforcing the case for rate stability when looking ahead. A longer-term horizon suggests upward risks to both inflation and rates.”

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