Minutes of the Bank Board meeting on 19 March 2026

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 second situation report based on the updated inflation outlook, the associated risks and an assessment of new data obtained since the winter forecast was drawn up. Consistent with the forecast was broad stability of short-term market interest rates in the first half of this year, followed by a slight increase in rates.

The Bank Board assessed the risks and uncertainties of the outlook for the fulfilment of the inflation target as balanced overall. The winter forecast was materialising quite well. Household consumption remained robust, investment was reviving and exports were performing solidly. Inflation was significantly below the 2% target. Core inflation remained elevated, but signs of a slowdown in services inflation were visible. The Board agreed that the macroeconomic impacts of the conflict in the Middle East were a new and highly specific risk in the months ahead, one that was difficult to evaluate at present. A key issue was not just the magnitude of the shock, but also its duration and the speed with which commodity prices could normalise after the acute phase of the conflict ended.

Aleš Michl said it was necessary to keep monetary policy tight and not underestimate the cost shock. Hawkish policy was in order. If there were a risk of rising core inflation, the Board would be ready to tighten monetary policy. Eva Zamrazilová stated that the acute phase of the conflict might not last long, but the strategic location of the Strait of Hormuz and the related persistent source of uncertainty could pose a problem. According to Jan Procházka, the current shock was acting primarily through four channels, which could develop independently of one another. The first was the geopolitical risk premium, the second was a real drop in the supply of oil, gas and other commodities, the third was a reassessment of the major central banks’ rate paths and the fourth was a worse growth outlook, in particular for energy-importing European and Asian economies.

There was a consensus in the Board that the external shock had hit the Czech economy in a situation of low inflation and relatively high interest rates. This provided a buffer for absorbing the inflationary shock. Interest rates were set at the right level and it would be premature to consider raising them in response to the conflict in the Middle East. According to Eva Zamrazilová, evidence that inflationary pressures were passing through to other price categories – especially in the event of a long-lasting conflict – would first be necessary. Jan Procházka emphasised that the CNB would not hesitate to react if the inflation path began to shift in the medium term. At the moment, though, he regarded keeping rates unchanged as the optimal strategy. Jakub Seidler recalled that an inflationary energy shock had occurred in the recent past following Russia’s invasion of Ukraine, and it was still fresh in the memories of households and firms. Inflation expectations might thus be disrupted more quickly now, and the second-round effects of the higher energy prices might thus show up in prices sooner and more strongly. According to Karina Kubelková, the impacts on supply chains and on the behaviour of firms could be significant but not immediately observable. The repeated disruptions to these chains witnessed in recent years would ultimately lead to changes in strategic business plans and were probably already causing structural changes.

The Board also agreed that it would not be the right response to raise monetary policy rates immediately in reaction to an external supply shock taking the form of a sharp rise in commodity prices. However, if the conflict in the Middle East were to persist and commodity prices were to stay high for longer or keep rising, it could gradually lead to a broader pass-through of high costs to other price categories and potentially to a rise in inflation expectations. The central bank would then have to respond, but the Czech economy was not currently in such a situation. According to Jan Kubíček, the role of monetary policy should not be to mechanically suppress the second-round inflationary effects of the shock, but to prevent accommodation in the form of increased loan creation and additional government bond issuance.

Part of the discussion was devoted to the interest rate settings from the cyclical perspective. According to Eva Zamrazilová and Jan Frait, some anti-inflationary factors (the weaker performance of certain euro area economies, the slightly stronger exchange rate of the koruna and the signs of a slowdown in services inflation) would have warranted a discussion about lowering rates had it not been for the conflict in Iran. By contrast, Jan Kubíček would still not have seen sufficient grounds for changing the monetary policy stance, as he viewed the risks and uncertainties as broadly inflationary. Karina Kubelková said that the current rate settings did not pose a risk to financial stability at present, either from the perspective of the accumulation of cyclical and systemic risks, or from the perspective of their potential materialisation in a situation of declining global economic growth.

According to Jakub Seidler, a partial tightening of monetary conditions had already occurred autonomously through the yield curve moving higher at all maturities. This had already been reflected in a modest increase in mortgage loan rates, for example. Jan Kubíček noted that the shift of the yield curve, which he regarded as particularly significant for longer maturities, probably contained technical trading factors and an increase in the risk premium. He then identified the persistence of the shifted curve and its transmission to client rates and loan production as a new layer of uncertainty.

The Board also discussed other risks and uncertainties. On the upside, mention was made of faster wage growth (especially in market services) linked with persisting tightness in the labour market, and higher growth in property prices. On the other hand, some positive signs of falling momentums were apparent in some services prices. Food prices should stay anti-inflationary for a time, owing to the evolution of agricultural producer prices. It was said that the exchange rate of the koruna was currently inflation-neutral and was thus a stabilising factor.

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