CNB: Time of stable interest rates

At its November meeting, the Bank Board of the Czech National Bank decided to leave interest rates unchanged. The two-week repo rate thus remains at 3.5%. This decision is in line with financial market expectations and reflects a combination of an improving macroeconomic outlook and persistent inflation risks. The central bank is now at a stage where it prefers monetary policy stability to further rate cuts in order to support confidence in achieving price stability and anchoring inflation expectations in the long term.

After several turbulent years, the situation in the Czech economy is relatively calm. Inflation is at a reasonably low level and its development is in line with the CNB’s target. At the same time, economic activity is gradually picking up without any visible inflationary pressures. According to the CNB’s new macroeconomic forecast, gross domestic product should grow by 2.3% this year and 2.4% in 2026. These figures are in line with the projections of other institutions and the results of our own model, indicating a relatively broad consensus on the outlook for the Czech economy. The CNB expects GDP to grow by 2.8% in 2027.

Inflation reached 2.5% in October, which is close to the inflation target, and this figure is estimated to be the average for the whole of 2025. In 2026, inflation should comfortably remain in the range of 2–3%, as in 2027. However, risks remain, particularly in the area of real estate prices, which are rising at a faster pace again, and also in the form of some inertia in inflation in services. Wage growth pressures and uncertainty about the impact of fiscal policy, which may become a more significant source of demand pressures next year, also remain important factors.

Incorporating this information into monetary policy considerations – whether in the central bank’s internal reaction function model or in the broader economic debate – suggests that the period of stable rates is likely to continue. The repo rate is expected to remain unchanged not only for the rest of this year, but also next year. Only in 2026 could there be a cautious reassessment if a sustained return of inflation to target and economic growth without signs of overheating are confirmed.