MNI CNB WATCH: Hold Seen, But Outlook May Put Cut In Frame

The Czech National Bank is likely to leave the two-week repo rate on hold at 3.5% at its first meeting of the year this Thursday, though with incoming data possibly showing a further slowdown from December’s 2.1% headline inflation, and fresh 2026 projections seen lowered from 2.2%, near-term easing may be discussed. (See MNI EM CNB WATCH: Czech National Bank Holds Rates At 3.5%)

Yet while headline rates are expected to dip below target this year, due to significantly lower energy prices  -  in large part related to government subsidies – as well as to subdued food price rises and declines in fuel and regulated prices, core inflation, at 2.3% in December, is expected to remain elevated.

Wage growth is seen remaining strong this year, while the CNB could also upgrade its growth forecast from the 2.4% seen in October, though the strength of Germany’s continued recovery remains a source of uncertainty - as is the longer-term impact of easier Czech fiscal policy. (See MNI EM INTERVIEW: Czech To Ease Fiscal Rules-FinMin Schillerova)

As Board member Jan Frait said in a recent interview, “external forces are exactly what the meeting will be and should be about... it is a very, very strong set of factors.”

Frait said he was "much less certain than ever before for 2026”, and that "for us, rates will remain roughly where they are, although I do see a certain possibility that they will go marginally lower.” (See MNI EM INTERVIEW: Slower Inflation To Test CNB Hawks - Singer)

Similarly, his colleague Jan Prochazka acknowledged in a Jan 28 interview that rates are restrictive, but said that is now warranted “because of core inflation.” Rates could be held “for some more time,” while policymakers wait for additional data “and for the right moment when we can explain to the market that one more cut is appropriate,” he added. (See MNI EM INTERVIEW2: CNB Should Ignore Brief Inflation Dip - Holub)

Having last cut rates in May 2025, the CNB may opt to hold for the time being, before clearly signalling one 25-basis-point cut, or more if external conditions demand it. However, so long as inflation is seen at or close to the 2% target across the forecast horizon, a terminal rate of around 3.25% remains likely. (See MNI EM INTERVIEW: CNB May Look Through Sub-Target CPI- Kral)