MNI INTERVIEW: Czech Rates Held Into 2026 - Ex-CNB's Skorepa

The Czech National Bank will hold its policy rate at 3.5% at its next meeting and delay further easing until 2026, though downside risks mean there is no need to consider tightening, a senior former official told MNI.

May’s 2.4% inflation print - up 0.6 percentage point on April - will not be enough to convince a majority of Bank Board members to change course, but it does mean that any other action than leaving the 2W repo rate at the current level in August is “rather unlikely,” Michal Skorepa said in an interview.  (See MNI EM INTERVIEW: CNB Holds In June, Cuts In Sept - Ex-Gov Singer)

“I think the CNB should and will cut the repo rate somewhat more. But given the recent wave of predominantly pro-inflationary data, I suspect we will have to wait for the next cut until roughly February 2026,” he said.

The Bank may also indicate that rates have now bottomed, “which is actually what one of the Board's members, Mr Kubicek, did recently,” said Skorepa, who spent 16 years at the CNB, including a decade as advisor to the board, before joining Ceska sporitelna, a bank.

Skorepa expects inflation to oscillate between 2.5% and 3%, with some chance of its reaching or exceeding 3% temporarily towards the end of the year.

While the balance of risks is tilted “mildly upwards,” Skorepa attributed much of this to a relatively low base a year ago. 

UPSIDE RISKS

Moderately pro-inflationary domestic factors include rather tight labour markets, upward cost pressures on food prices and recovery of household consumption, he said. 

“The main risks on the upside are, first, more persistent inflation of services; second, sizeable fiscal expansion connected to Czech parliamentary elections or due to a change in the government after them; and, third, the revival of the Chinese domestic demand,” he said.

But price level increases will be hindered by external disinflationary pressures, Skorepa added, in particular slower global growth and lower oil prices caused by U.S. tariff policy.

Czechia’s small, open economy and strong exposure to the euro area means that the exchange rate is crucial, Skorepa said, noting also that the share of corporate FX loans has risen to over 50% over the last three years.

The koruna now seems close to its fundamental level, he said, “so I expect only very slow appreciation in the following quarters due to the revival of the Czech and European economy and due to only a slow fall in the CNB's repo rate.”

Asked to assess the overall performance of the CNB under Governor Ales Michl, Skorepa, who left the CNB in 2016, highlighted the recent departures of several senior monetary policy and modelling experts from the bank as evidence of recent tensions within the central bank, but said he was less critical than many other local commentators. (See MNI EM INTERVIEW: FinStab Changes Could Allow CNB June Cut - Kral)

“I have had some doubts about the use of FX interventions and I would tone down some of Mr Michl's comments such as those about the desirability of a strong koruna, of households saving rather than spending, of zero government budget deficits or of banks reducing lending rates faster,” he said.

“But overall, I assess the actual conduct of monetary policy since 2022 as satisfactory.”