Minutes of the Bank Board meeting on 7 August 2025

Present at the meeting: Aleš Michl, Eva Zamrazilová, Jan Frait, Karina Kubelková, Jan Kubíček, Jan Procházka, Jakub Seidler

The meeting opened with a presentation of the fifth situation report and the new macroeconomic forecast. According to this forecast, inflation would be above the 2% target this year and very close to it over the monetary policy horizon. Consistent with the baseline scenario of the forecast was a modest decline in short-term market interest rates initially, followed by a slight increase in rates next year.

The Bank Board assessed the risks and uncertainties of the outlook for the fulfilment of the inflation target as inflationary overall. Aleš Michl said that the current situation precluded an interest rate cut. He emphasised the need to keep real interest rates positive, especially in a situation of elevated general government deficits.

In a discussion of the current and future monetary policy stance, Eva Zamrazilová said that lowering interest rates would cause them to have a neutral effect, whereas the present situation required moderate restriction given the nature of the upside risks to inflation, in particular the inertia of inflation in services and real estate activities. She did not rule out a rate cut at a future meeting, but she regarded such a step as unlikely. Jan Frait added that the economy was moving cyclically into the expansion phase and the monetary policy stance was probably not restrictive any more, as also indicated by accelerating growth in lending. Jan Kubíček assessed growth in bank loans to corporations as relatively subdued. However, he drew attention to the volume of bonds issued, which now corresponded to roughly 30% of the volume of loans to non-financial corporations and could not be viewed as negligible. Jakub Seidler agreed, adding that corporate bond financing had risen by 60% year on year in 2025 Q1. Combined with the solid growth seen in other credit segments, this showed that the current monetary policy stance was no longer so restrictive. Karina Kubelková said that the present interest rate levels were appropriate to the current situation, and the interest rate outlook did not pose a risk from the financial stability point of view. She recommended leaving room for a flexible monetary response and not ruling out any rate movement going forward, especially in a context of persisting uncertainties arising from developments abroad. This view was shared by Jakub Seidler, who also mentioned the need for openness as regards the future monetary policy stance.

The Board viewed a stronger exchange rate of the koruna against the euro as an anti-inflationary factor. Jan Kubíček regarded slightly restrictive monetary policy via the exchange rate as useful, because in his opinion the effect of interest rates was now neutral. According to Jan Frait, a stronger koruna would be consistent with the estimated rate of growth of economic activity, the evolution of the items of the balance of payments, and the expected actions of other central banks. Eva Zamrazilová added that a stronger koruna could directly affect prices of goods but not prices of services, with the exception of holidays. Wage growth plays the key role in services prices.

Services prices were discussed in the debate about domestic inflation as well. Jakub Seidler noted that the momentum of market services inflation had been well above the usual pre-pandemic level in the first half of this year and that this strong growth was being driven in part by consumption of services by households, which was now above the 2019 level. Jan Procházka viewed the elevated growth in services prices as involving gradually dissipating structural changes rather than new cyclical pressures. In a debate about the structure of inflation, Eva Zamrazilová pointed out that more than half of the consumer basket items were now going up in price at a rate of more than 3%. Median inflation had been 3.8% in June and was therefore higher than the reported inflation rate. Energy and fuels – items with relatively high weights – were keeping inflation inside the tolerance band. These items were showing an extraordinary decline in prices, but it would gradually fade out. She also identified house price disequilibrium as a risk to the fulfilment of the inflation target. This was reflected in growth in market and imputed rents, which had increased by almost 5% year on year in June. Jan Kubíček said that the models used at the CNB were now indicating that house price growth would soon slow. In his opinion, whether this slowdown actually materialises would thus be important for the future path of rates. Karina Kubelková mentioned the introduction of the EU ETS 2 emissions trading system as a new upside risk to inflation at the forecast horizon. Jan Kubíček and Jakub Seidler pointed to the uncertain quantification of this risk, as it was not known whether and how the future government would compensate for any price effect of ETS 2.

The majority of the Board assessed the situation in the real economy as positive due to strong domestic demand. Karina Kubelková pointed to the worse-than-expected flash estimate of GDP growth in Q2, which – along with other data casting doubt on the optimistic economic situation – was currently being downplayed. According to Jan Procházka, this may indicate lower growth of industry due to the relatively strong koruna and an only transient recovery in Q1 caused by stockpiling in response to the US administration’s tariff measures. In his view, the economic slowdown in the euro area and the muted domestic investment activity might also be weighing on the domestic economy. Jakub Seidler noted that flash GDP estimates had tended to be revised up in the preceding quarters. He added that economic confidence indicators were not indicating that the economic situation was likely to worsen acutely. In Jan Frait’s view, the labour market remained tight, as indicated by steady wage growth, which would continue to have an inflationary effect. He therefore still considered the state of the labour market to be one of the decisive arguments against cutting interest rates further. Jan Procházka likewise pinpointed the labour market situation as crucial for the further course of monetary policy.

In a debate about external risks, Eva Zamrazilová said that the risks associated with the US administration’s tariff policy had not disappeared, but the worst-case scenarios considered at the start of the year had not materialised. According to Karina Kubelková, the risks stemming from the trade wars to date persisted; the current calming of the situation could be short-lived and it would take some time for a full analysis of the true impacts of the tariffs to be possible. Jakub Seidler agreed that the situation could quickly take a turn for the worse, so it was necessary to remain flexible as regards the future monetary policy stance. Jan Frait pointed to the potential anti-inflationary risk associated with a possible slowdown of the US economy and, in turn, the global economy. At present, however, he felt that this risk was not too likely to materialise. Jan Procházka illustrated the uncertainty regarding the strength of external demand with reference to the sizeable negative revision of the labour market data in the US.

At its meeting, the Bank Board kept interest rates unchanged. The two-week repo rate thus remains at 3.50%, the discount rate at 2.50% and the Lombard rate at 4.50%. All seven members voted in favour of this decision.

Author of the minutes: Josef Simpartl, Monetary Department