Minutes of the Bank Board meeting on 18 December 2025

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

The meeting opened with a presentation of the eighth situation report based on the updated inflation outlook, the associated risks and an assessment of new data obtained since the autumn forecast was drawn up. Consistent with the forecast was broad stability of short-term market interest rates over the next few quarters.

A majority of the Board assessed the risks and uncertainties of the outlook for the fulfilment of the inflation target as balanced overall. According to Aleš Michl, all options regarding the path of rates were still open going forward. The aim was to keep inflation low and to remain hawks combating inflation.

In the discussion, Jan Frait noted that monetary policy was now configured well. Interest rates were equally likely to move in either direction. The stronger koruna was dampening growth in import prices, while the level of longer rates was reducing the risk of excessive credit expansion. Jan Procházka added that the central bank was in a good position in terms of the economic situation, allowing it to wait and see how the situation unfolded. He went on to say that energy prices were lowering the inflation outlook for 2026, thanks in part to their administered component. According to Karina Kubelková, the large number of uncertainties was sufficient reason for keeping interest rates at a restrictive level and waiting for further economic developments. Jakub Seidler said that moderately restrictive monetary policy was now desirable and was being delivered in part through the exchange rate of the koruna, which was primarily affecting import prices, the decline in which would have been substantially smaller without the exchange rate effect. Jan Kubíček argued that the koruna’s previous appreciation trend had halted in December, so further anti-inflationary risks stemming from the exchange rate now appeared weaker.

The discussion of inflation mainly concerned services prices. According to Karina Kubelková and Jakub Seidler, inflation in the service sector remained elevated, reflecting structural changes in the economy and household demand. Jakub Seidler added that the disinflation process in services was continuing, but much more slowly than would be desirable. He also noted that wage growth was 1.5 percentage points higher in services than in the rest of the economy, further emphasising the inflationary effect of services. According to Jan Procházka, wage growth was the key parameter for services inflation. He voiced the hypothesis that the slowing wage growth in industry could be reflected in wages in services and, in turn, in services inflation. Jan Frait said that the downward tendency in the components of core inflation, as indicated by the momentums, was not clear-cut. However, he suggested that the decline in energy prices could reduce inflation in other categories of the consumer basket.

Another topic of debate as regards inflation was property prices and related developments in the construction industry. Jakub Seidler said that on the one hand, an overheating construction industry – which would be reflected in rising prices of building materials and construction work – could constitute an upside risk to inflation. He pointed out that wages in construction had been going up at a rate well in excess of the long-term average in 2025. On the other hand, if construction activity were to slow, it would be reflected in under-supply in the property market and property prices would thus keep rising. Jan Kubíček noted that the latest data were not indicating a reduction in the rate of growth of property prices for now.

The impact of the transfer of payments for renewable energy sources to the state budget was also discussed. Jan Frait, Jan Kubíček and Jakub Seidler expressed the view that this change would initially have a one-off effect on inflation that would not require a monetary policy response. According to Jan Procházka, however, this step should be seen in the overall context of fiscal policy, whose aggregate effect would probably be inflationary. Jakub Seidler also saw fiscal policy as a potential upside risk to inflation. He noted that the general government deficit was currently fostering growth in the quantity of money in the economy. Karina Kubelková said that more was now known about the plans of the new government and the timing of some of its measures. In her opinion, these measures remained at the level of risks for the time being, even though they were highly likely to be implemented.

According to a majority of the Board, the growth of the Czech economy in the third quarter had surpassed expectations. In this regard, Karina Kubelková and Jan Kubíček highlighted the surprisingly high contribution of net exports. Jan Procházka reflected on the strong level of household consumption, as it was apparent from data from online stores, payment service providers and couriers that Czech households had continued to spend more than in the previous year at the end of 2025. By contrast, the performance of Czech industry remained weak. A difference between subdued industry and rapidly expanding services had been evident for quite a while now, possibly reflecting a structural shift in demand from industry to services. Jan Frait saw no major signs of an overheating economy in household consumption. This was due to its structure, with the growth in consumption being driven primarily by short-term consumption and consumption of services. In his opinion, in an overheating economy, which would induce growth in inflation expectations, consumption of durable goods would be rising more significantly.

According to Jan Frait, the labour market was cooling only slowly, if at all. Jan Kubíček perceived that the current rise in unemployment was more structural in nature, with employees laid off from industry not fully meeting the requirements of jobs offered in the service sector. He also drew attention to the elevated uncertainty surrounding wage growth due to revisions of past data and to wage bargaining in the public sector for 2026, which had yet to be completed.

The board members saw a number of downside risks to inflation stemming from economic developments abroad. Karina Kubelková noted the slow recovery in Germany, where economic reforms had yet to be implemented on the scale pledged by the federal government. In her view, there was also risk that fiscal expansion in Germany would not take place to the expected extent and/or that it would have only a limited impact on the recovery of the German economy. In addition, she saw persisting uncertainties in the form of the war in Ukraine and the potential impacts of US tariffs, which could have lagged effects, and not just in the form of disruption of global supply chains. Besides the delayed recovery of the German economy, Jakub Seidler drew attention to the risk of the EU losing competitiveness with respect to China, which could affect not only the recovery of the German economy, but also domestic producers. Jan Frait pointed to the risk of over-investment in some sectors of the economy. A global correction of relevant asset prices could cause economic sentiment to worsen and global demand to cool. In the context of an asset price correction, there was additionally the question of governments’ options for responding to such an event, as their fiscal space had shrunk in recent years.

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 six members present voted in favour of this decision.

Author of the minutes: Josef Simpartl, Monetary Department