MNI INTERVIEW: Slower Inflation To Test CNB Hawks - Singer

The Czech National Bank is likely to keep rates on hold until the third quarter of 2026, former governor Miroslav Singer told MNI, though he added that with upside price risks waning the question of to what extent it might be willing to tolerate sub-2% inflation is increasingly coming into focus.

While the CNB appears comfortable with the current situation - with inflation at 2.1% in December, the policy rate at 3.5%, and the economy continuing to improve - there was little in the minutes from last month’s Bank Board meeting to indicate there is much of an appetite to ease before the summer, Singer said.

Services sector wage growth remains high, a topic members discussed at length, though Singer identified corporate profits in general  - and services and  financial services most notably - as a leading indicator that may soon point to a further slowdown in the pace of price growth.

“That will be important, but it will take time - probably around three months - before we really learn more,” he said.

The CNB will tolerate movements of up to +/-1% around the 2% inflation target, but by how much and for how long is unclear, Singer said, adding that while there is very little to worry about in terms of upside inflation risks, a majority of Board members will be wary of easing too soon.

“This Board, based on their experiences with what happened in the past, has a strong anti-inflationary focus, so they - with the exception of two or three Board members - would be much more willing to tolerate inflation of 1.7% than 3.3%, for example.”

FISCAL UNKNOWNS

Singer expressed scepticism over the need for a change in the policy stance before the middle of year. Lack of detail over precisely what energy costs Andrej Babis’s new government will absorb into the public budget, and when and on what terms the last government’s pension reform is undone mean inflation dynamics are difficult to predict, he said, though in the latter case more information is "hopefully" coming this year. (See MNI EM INTERVIEW: Czech Tax Cuts Risk Public Finances - Jansky)

“Even if this government will come with higher spending or a less strict fiscal situation, which they want and need politically, the fact is that a more relaxed fiscal stance would mainly suck in imports, not push inflation higher. The impact would be mainly on foreign trade and the current account, not on prices.”

Retail sales ended 2025 strongly, as did the Czech Republic’s current account balance thanks to an increase in orders towards the end of the year, likely associated with some improvement in the German economy - though how long that lasts remains to be seen, Singer said. 

“What puzzles me is that firms and people are not spending more on foreign goods, but they seem to be spending more on Czech goods. We don’t yet have the data for the Christmas period, but it will definitely be worthwhile to watch and look at carefully in February.”