Czech National Bank Leaves Interest Rates Steady

The Czech National Bank kept its two-week repo rate unchanged at 3.5% in February 2026, as widely anticipated, maintaining the level seen since May 2025. Policymakers have repeatedly cited domestic risks, including the budget deficit, rapidly rising service and housing costs, and wage growth, as obstacles to further monetary easing. Meanwhile, headline inflation eased more than expected to a nine-year low of 1.6% in January, down from 2.1% in December, but closely monitored services inflation remained elevated at 4.7%. Czech policymakers may have scope to cut rates this year, though further evidence of easing inflationary pressures will be needed to justify such a move.

The Czech National Bank kept its two-week repo rate unchanged at 3.5% in December 2025, in line with market expectations, amid softer-than-expected inflation and prospects of further disinflation in 2026. The government recently approved measures to lower electricity bills for households and companies, a move that could push inflation below the 2% target next year while leaving more disposable income that may fuel services inflation. Governor Aleš Michl has avoided signaling a clear medium-term rate path, reiterating that all options remain open. Several board members, however, have indicated that borrowing costs could remain unchanged throughout next year.

The Czech National Bank left its two-week repo rate unchanged at 3.5% in November 2025, in line with market expectations, marking a fourth straight pause as an easing cycle lost steam amid inflationary pressures from services and wages. Headline inflation rose to 2.5% in October, above forecasts but still within the CNB’s 2% ±1 percentage point target range, while service-sector inflation remained elevated at 4.6%, and wages continued to rise in a rebounding economy. GDP expanded 2.7% year-on-year in Q3, the fastest pace since Q2 2022. The Finance Ministry upgraded its forecasts to 2.4% for 2025 and 2.2% for 2026, citing stronger-than-expected wage growth. The newly elected government has signaled plans for increased fiscal spending, though detailed measures are yet to be unveiled. Against this backdrop, the CNB maintained a cautious, wait-and-see approach, balancing inflationary risks with the need for clarity on the government’s fiscal trajectory.