The CNB is waiting for a new impetus and is counting on economic growth that is less inflationary

The Bank Board left the interest rate unchanged at 3.75%. The projected rise in the interest rate to 4% was apparently not sufficient for the Bank Board, perhaps due to weaker economic growth, the strong koruna, and lower month-over-month core inflation. Added to this is a communication challenge stemming from the essentially weak growth in overall consumer prices. Inflationary risks persist, even in the context of expected stronger, but less inflationary, economic growth.
The CNB is waiting for a new impetus and is counting on economic growth that is less inflationary ilustrační foto

The CNB Bank Board unanimously left its interest rates unchanged, with the two-week repo rate remaining at 3.75%. The central bank’s outlook, which slightly lowered its forecast for this year’s economic growth (2.2%) and consumer prices (2%), anticipates a slight temporary increase in the CNB’s interest rate to 4% by the end of this year, accompanied by a gradual weakening of the koruna to 24.4–24.5 against the euro.

Why stable rates?

1) Slightly weaker economic performance compared to forecasts (-0.3 percentage points) and a still-strong koruna, which provides a buffer against the expected depreciation, likely gave the CNB room to leave the interest rate unchanged.

2) Added to this is a communication challenge stemming from the essentially weak overall growth in consumer prices, which rose by 1.7% year-over-year in July. However, the central bank is concerned about the approximately 2.9% year-over-year growth in core inflation, with an annualized rate of roughly 2.5%. For more details, see: July Inflation and June Retail Sales Give the CNB Time, but Not Peace of Mind.

According to the Bank Board, the risks remain pro-inflationary. The main risks area return to stronger momentum in demand-driven core inflation and continued significant growth in lending to households and the government—and thus a higher government deficit. Added to this is the still-strong wage growth, which, given the June industrial data, may continue (see here: Four Stories from the June Data: Energy, Exports, Wages, and Housing Starts)

I consider the weakest factor in the forecast so far (we’ll see what the details are) to be the renewed assumption of an expected non-inflationary economic recovery to 0.7–0.6% quarter-over-quarter. That would imply 2.7% growth in 2027. The recovery will need to be accompanied by stronger productivity growth to ease inflationary pressures. If the ECB raises interest rates in September and August’s core inflation strengthens, this would create room for an interest rate hike to 4%.

For more on the discussion of risks, see “CNB’s August Rate Hold Comes as No Surprise, but a September Hike to 4% Remains on the Horizon.”

The central bank has slightly lowered its forecast for economic growth this year (2.2%) ...

and consumer prices (2%)

The economy was slightly weaker in Q2 2026

The forecast calls for only a slight increase in the interest rate ...

... and a slightly stronger koruna ...

... also slightly tightened its outlook on monetary conditions