MNI CNB WATCH: Czech National Bank Holds Rates At 3.5%

The Czech National Bank left monetary policy unchanged on Thursday as expected, with "relatively tight monetary policy compared to the past" still needed in light of elevated credit growth, tight labour markets and strong wage growth. (See MNI CNB WATCH: Czech National Bank To End Year At 3.5%)

Inflation will remain "slightly above" 2% until the end of next year, but core inflation is seen staying elevated in the quarters ahead, the CNB said in a statement, as it reiterated that ongoing domestic currently preclude a further decrease in interest rates. It left the two-week repo rate at 3.5%, the discount rate at 2.50% and the Lombard rate at 4.50%, 

Overall risks to the inflation outlook were "balanced," with an upside risk coming from a pickup in money supply growth "caused by lending to households and general government," it said.

"Potential additional growth in total public sector spending would lead to a risk of fiscal policy having an even greater inflationary effect," the Bank said, though a stronger koruna exchange rate could help contain an increase in inflation.

The Czech economy has continued to grow at a "solid" pace this year, with flash estimates indicating GDP increased by 0.7% quarter on quarter and by 2.7% year on year in Q3 2025 Q3, the highest figure in the last three years, the Bank said, with growth driven principally by household consumption, as wages jump 7.8% year-on-year in Q2.

"At its meetings ahead, the Bank Board will base its decisions on an assessment of newly-available data and their implications for the inflation outlook. Its considerations about the interest rate settings will depend mainly on an evaluation of the persistence of the low-inflation environment, koruna exchange rate developments, the effect of fiscal policy on the economy, an analysis of the tightness in the labour market, and changes in domestic and external demand," the CNB said.

"The Bank Board will also monitor the actions of key foreign central banks, geopolitical events and developments in trade relations between countries. It will also assess the transmission of previous interest rate cuts to lending activity, asset prices – above all property prices – and subsequently real economic activity and prices."

The next monetary policy meeting will take place on Feb 6, 2026.