Minutes of the Bank Board meeting on 24 September 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 sixth situation report based on the updated inflation outlook, the associated risks and an assessment of new data obtained since the summer forecast was drawn up. Consistent with the forecast was a modest decline in short-term market interest rates initially and a slight increase in 2026.
The Bank Board assessed the risks and uncertainties of the outlook for the fulfilment of the inflation target as inflationary overall. Aleš Michl opened by signalling a hawkish stance and said that continued inflation pressures from the domestic economy currently precluded another interest rate cut.
Most of the risks identified at the August meeting remained relevant. This was especially true for the domestic economy. Jan Procházka said that against a backdrop of recovering economic activity, ongoing structural changes were complicating the cyclical interpretation of the data. In particular, demand was shifting from goods to services and from quantity to quality. On this issue, Eva Zamrazilová noted that households’ purchasing power was solid, as the real net wage was now above the pre-Covid level. According to Karina Kubelková, the domestic economy was showing a fair degree of resilience by international standards. Corporate sentiment was improving and the financial markets had calmed down following the escalation of the trade war situation. However, the geopolitical situation could quickly change everything. Jakub Seidler, by contrast, observed that consumer confidence had been stagnant at a low level over the last year, and around fifty per cent of industrial corporations were citing insufficient demand as a barrier to growth. According to Jan Kubíček, the narrative of the current forecast was essentially unchanged; if the forecast materialised, roughly a year from now the economy would be above its potential for the first time in a long time, implying a risk of overheating. Eva Zamrazilová could already see signs of overheating in the area of consumption.
Upside risks to inflation were linked primarily with the structure of the price growth. Karina Kubelková noted that the disinflation process was not over yet; she viewed the present situation as very fragile. Jakub Seidler said that in every month of this year, with the exception of May, month-on-month core inflation had been above the average for the relevant months of 2010–2020. Inflation remained elevated in services as well. Jan Kubíček considered it significant that core inflation was no longer going up; it remained elevated but would be close to 2% one year ahead. Jan Procházka added that the inflationary momentum was now diminishing in most price categories. According to Jan Frait, none-too-positive sentiment – mainly reflecting risks associated with the global economy – was stopping inflation from rising. These risks included the poor state of public finances in many countries, which could lead to growth in long-term interest rates because of an increase in the risk premium, or to forced fiscal consolidation. Eva Zamrazilová pointed out that the distribution of the price growth was uneven, skewed towards items exhibiting higher price growth. Half of the items in the consumer basket were rising at a rate of more than 3.5%. Moreover, fuel and energy prices were helping to keep inflation inside the tolerance band. Once their effect faded away, the growth in prices could thus become all the more uneven. Other members (Jakub Seidler, Jan Procházka, Jan Frait) agreed.
Another upside risk was continued rapid wage growth linked with persisting tightness in the labour market. It was said repeatedly that this was a broad-based phenomenon. Jakub Seidler pointed out that wage growth had recently been almost two percentage points higher in services than in the rest of the economy. Eva Zamrazilová said that in the first half of this year, overall wage growth had exceeded 7%, well above the level consistent with inflation being near the 2% target. She regarded labour market developments as a crucial factor, because future inflation would be very closely linked with the structure of household consumption, which was beginning to overheat. Strong consumer demand, especially in the service sector, was allowing prices to be increased. Jan Frait added that the labour market was being significantly affected by demographic change, which was probably having an inflationary effect overall. Jan Procházka conceded that wages were rising fast, but he interpreted part of the growth as being due to the lingering effect of structural changes; with interest rates at their current level, and in the overall context of the economy, the growth in wages should not jeopardise price stability.
Other upside risks and uncertainties were also discussed. Aleš Michl considered the persisting general government deficit to be the largest of these. House prices, the post-election fiscal impulse and the ultimate impacts of the ETS 2 emissions trading system were also mentioned. There were persisting uncertainties related to developments abroad. These included the planned fiscal stimulus in the EU and its impacts on the Czech Republic, and trade wars.
The stronger exchange rate of the koruna was identified as an anti-inflationary factor. At present, Jakub Seidler regarded this as desirable, because it meant an additional tightening of the monetary conditions. Together with unchanged rates, it was creating a suitable combination for ending the disinflation process, even though, according to estimates, the koruna now seemed modestly overvalued. Other members voiced similar sentiments. For example, according to Jan Frait, the strong koruna was helping to dampen inflation expectations, the anchoring of which was the foundation of the inflation-targeting regime. Jan Kubíček mentioned that the current movement of the exchange rate was within the bounds of natural variability. Jan Procházka drew attention to the effect of the relatively strong koruna on Czech industry, but he did not see many reasons for the koruna to weaken towards the projected level in the near future. According to Karina Kubelková, however, such reasons could stem from abroad as a result of an abrupt deterioration in sentiment passing through to the Czech economy. Eva Zamrazilová did not regard large exchange rate swings as good for the economy; broad stability or only gradual appreciation were preferable. She viewed the anti-inflationary risk of the exchange rate as low in intensity, partly because the exchange rate primarily affects prices of goods, whereas its effect on prices of services (with the exception of package holidays) is negligible.
Part of the discussion was devoted to the interest rate settings. There was a consensus that leaving the two-week repo rate unchanged at 3.5%, coupled with the strong koruna, provided a sufficient degree of restriction to offset the upside risks to inflation. The path of economic activity remained subject to a number of uncertainties. It was therefore necessary to stay flexible; the next interest rate movement could be in either direction. Deliberations on raising interest rates were deemed premature. Eva Zamrazilová preferred to keep rates unchanged for longer. Karina Kubelková said that the decision to leave rates unchanged did not pose significant risks to financial stability, nor did it create undesirable incentives that would lead to excessive growth and accumulation of systemic risks.
After discussing the situation report, the Bank Board left interest rates unchanged. All seven members voted in favour of this decision: Aleš Michl, Eva Zamrazilová, Jan Frait, Karina Kubelková, Jan Kubíček, Jan Procházka and Jakub Seidler.
Author of the minutes: Jan Syrovátka, Monetary Department