New Loans in the Economy

The CNB is likely to keep the two-week repo rate at 3.75% in August. However, the ECB’s wait-and-see approach is not a definitive guide for Czech monetary policy: domestic core inflation, the labor market, and lending activity are having a more inflationary effect. However, it is not just mortgages that are driving Czech lending; there is also a noticeable recovery in investment loans, which could ease inflationary pressures on the supply side. If service prices start rising again in July and August, the Bank Board may raise the rate to 4% on September 17. Markets are pricing in interest rate hikes by both the CNB and the ECB this fall.

The CNB’s survey of banks’ lending conditions for the second quarter came as no surprise; the most significant change concerned housing loans. The central bank’s stricter criteria for investment mortgages tightened not only the banks’ lending requirements. In line with historical experience, this supported demand, likely temporarily. The impact on lending conditions was partially offset by lower bank margins and more favorable repayment terms. In an environment of continued strong competition, the stronger demand helped mitigate the impact of the spike in market interest rates on mortgage rates, which consequently rose more modestly. However, expectations of weaker demand for housing loans in the third quarter are changing this narrative. Surveys on consumer and business loans are also likely to keep the CNB’s outlook on the hawkish side.

The countercyclical capital buffer should rise to 1.5% from July 2027, which will increase banks' total capital requirements to around 17% next year, in response to continued growth in lending to households and firms and lower perceived risks in the banking sector. Again, we are also seeing stronger wage growth outpacing productivity. In the case of rising investment credit, however, this is a dilemma for macroprudential policy. In addition to the financial cycle, the results of stress tests, including concerns about the interconnectedness of the banking and government sectors, are likely to have factored into the decision. It leaves mortgage rules unchanged.

Commentary by Miroslav Zámečník, Chief Advisor of the Czech Banking Association

Comment by Jaromír Šindel, Chief Economist of the CBA: The central bank did not surprise by unanimously leaving interest rates unchanged, i.e. with the two-week repo rate at 3.50%, for the fifth meeting in a row after a 25bp cut in May. Although the Board did not change its view of the risks and uncertainties surrounding the CNB's November forecast, it did assess the risks to inflation as balanced, given the risks in financial markets and the removal of the renewable energy levy, following November's upside assessment.

Commentary by Miroslav Zámečník, Chief Advisor of the Czech Banking Association

In June 2025, banks and building societies granted new mortgages worth CZK 29.4 billion.

Despite the slight correction, April continued to see strong volumes of new mortgages supported by another slight decline in the average mortgage rate to 4.65%.

Commentary by Miroslav Zámečník, Chief Advisor of the Czech Banking Association