Czech Republic holds rates again and upgrades growth outlook

The Czech National Bank (CNB) has maintained its policy rate for the second time in a row, as the economy continues to run hot and inflation stays above target.

In a unanimous decision yesterday (August 7), the CNB’s board held the benchmark two-week repurchase rate at 3.5%. This followed a rates hold in June.

“Tight monetary policy is still needed,” the board said in a statement. “Households’ demand continues to grow. Services inflation remains elevated. Rising property prices are also a risk to inflation. The momentum of core inflation currently remains elevated.”

Year-on-year headline inflation was 2.7% in July, down from 2.9% the previous month but still above the bank’s 2% target.

Aleš Michl, the CNB governor, said in a press conference that the board wanted the policy statement to sound hawkish, though he added that all options remained open in future meetings.

“I do not smooth [inflation]; I fight inflation,” he said.

The bank also revised its projections, and now expects GDP to grow by 2.6% this year and next. The previous forecast, made in May, predicted year-on-year GDP growth at 2% for this year and 2.1% for 2026.

The CNB updated its inflation outlook to 2.6% for 2025 and 2.3% for 2026. The respective figures had been 2.5% and 2.2% in its previous forecast.

In a snapshot of its quarterly monetary policy report, published today, the CNB noted that house prices in the Czech Republic were now in the “upward phase of the cycle”, which was feeding into headline inflation via imputed rent.

It added that US tariffs on the European Union would dampen external demand for Czech goods in 2025. However, it said exports would regain momentum after this year as Germany relaxed its limit on government borrowing.

The CNB is due to publish the full report on August 15.

David Havrlant and Frantisek Taborsky, analysts at ING, agreed with the governor’s remarks that the policy statement was hawkish.

“A cut was perhaps not even a point for discussion,” they wrote in a note. “A stronger koruna is the only disinflationary element right now, keeping imported inflation on a short leash.”

The currency has gained around 14% against the dollar this year, amid the greenback’s weakening trend since Donald Trump became president in January.

The CNB is due to make its next rate decision on September 24.