Minutes of the Bank Board meeting on 7 May 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 third situation report and the new macroeconomic forecast. According to this forecast, inflation would be in the upper half of the tolerance band for the rest of this year. Consistent with the baseline scenario of the forecast was a rise in short-term market interest rates in Q2. The forecast expected interest rates to decline again next year.
The Bank Board made its decision amid exceptional uncertainty stemming from the conflict in the Middle East. It assessed the risks and uncertainties of the outlook for the fulfilment of the inflation target as inflationary overall. 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 said that the current shock had hit the Czech economy in a situation where inflation was close to the target and real interest rates were positive, i.e. in far better condition compared with the February 2022 shock. The relatively tight monetary policy pursued recently was proving to be appropriate and thus now gave the CNB room to assess the situation properly and not rush into a decision. Other board members also mentioned the relatively favourable starting position of the domestic economy and domestic monetary policy at the time the Middle East conflict broke out.
In a discussion of the impacts of the war, Jan Procházka noted that the longer the conflict dragged on, the longer it would take to return to normal after it ended. He also mentioned the relative optimism around the world regarding the impacts of the conflict on economic activity. In his view, this optimism could soon deteriorate. The situation might then shift towards the scenario of higher energy prices and a more pronounced economic downturn, even though at the moment he could not really imagine the reduction in rates implied by this scenario. Jan Frait also described this scenario as relevant, saying that the current conflict had caused lasting damage that would adversely affect consumer and investor confidence in an economic recovery. This would encourage precautionary saving. Jakub Seidler agreed that even an early end to the conflict would not mean a return to the situation before it broke out, adding that the problem was not just oil prices, it was prices of gas and other commodities and disruption of supply chains. Eva Zamrazilová also stated that even after the conflict ended, the situation would not get back to normal for months. However, she also mentioned the possibility of supply side adjustment, which had proven surprisingly fast during past shocks. At the same time, she expressed the opinion that the downside risks to inflation had weakened. The conflict was stagflationary, but Eva Zamrazilová considered the inflationary risks to be greater than the threat of a growth slowdown of sufficient strength to put downward pressure on prices.
Jan Procházka and Karina Kubelková then discussed the latest available data for the German economy. They said that the figures were none too positive and that the German economic recovery expected by the forecast was therefore over-optimistic. Jakub Seidler and Jan Frait agreed. Jan Kubíček voiced doubts about the projected acceleration of investment growth. Eva Zamrazilová identified the weaker-than-expected GDP growth for Q1 (even though its detailed structure was not yet known) as one of the reasons to stay in wait-and-see mode at today’s meeting and await further data. Karina Kubelková drew attention to the still high core inflation and buoyant growth in wages, property prices and construction work prices in the domestic economy.
The effect of the conflict on inflation expectations was repeatedly highlighted as a significant yet currently uncertain factor. According to Karina Kubelková, anchored long-term inflation expectations had contributed to the favourable starting position of the Czech economy. She noted, however, that some loosening of short-term expectations was already evident. Jan Procházka stressed the importance of fuel prices for households’ inflation expectations. Jakub Seidler added that although households’ concerns about inflation had risen in April, he viewed firms’ behaviour following the recent experiences with inflation shocks as the main upside risk to inflation. Any excessive transmission of costs to final prices would risk triggering longer-term second-round inflationary effects. Jan Kubíček also identified corporate pricing as a major question: would companies absorb the shock or conversely amplify it by increasing their profit margins? At the same time, however, he repeated that the present situation was very different from 2022, when the supply shock had hit when inflation was already underway. According to Jan Frait, the resilience of the exchange rate of the koruna to external shocks was preventing inflation expectations from rising more significantly.
In a debate about loans, Jan Kubíček pointed to the high growth in both mortgages and consumer credit. Although this might have been due in part to frontloading before the CNB’s stricter recommendations on investment mortgages took effect, in his view it signalled that interest rates were not delivering an adequate degree of restriction in this area. In relation to this, Jakub Seidler noted that frontloading had also been apparent for “American mortgages”, which are reported under consumer credit. This had caused a one-off surge in this credit segment as well. In his opinion, the frontloading factor thus needed to be taken into account when assessing the currently high growth in loans and imputed rent. Jan Frait more generally discussed the risks arising from rapid growth in loans to the private and public sectors. Some disruptions were already visible in global financial markets, though they remained isolated for now.
The Board went on to discuss the monetary conditions. There was a consensus that the current rate level was still moderately restrictive overall. This had been aided in recent months by an autonomous tightening of monetary conditions through growth in market rates with longer maturities. Jan Kubíček added that this autonomous tightening, however, should not be considered a substitute for the CNB’s monetary policy, as it was partly a result of expectations that the CNB would take action, and it would stop working if it failed to deliver such action over the long term. The Board also agreed that the koruna exchange rate was showing solid resilience amid the present shock and was thus helping to keep monetary conditions relatively tight.
Some of the board members discussed the possibility of a monetary policy error. According to Jan Kubíček, a rate hike at this meeting could be viewed solely as a direct response to the current supply shock, so if the shock were to fade rapidly, a rapid rate movement back down again would be expected, which he would not consider the right step. Conversely, if the supply shock were to continue, any delay error could be corrected by responding appropriately over the rest of the year. Given the considerable uncertainty and the good starting position, a majority of the Board regarded the risk of making a monetary policy error by keeping rates unchanged at this meeting as small.
Jakub Seidler added that monetary policy should not react to the first-round effects of the adverse supply shock, but only to the second-round ones. He meanwhile stated that some of the first-round impacts of the current shock in the area of energy prices for households would have a lagged effect on inflation even at the monetary policy horizon, so the interest rate path in the forecast responded to them. However, it was possible to look through this effect when making the monetary policy decision. On the other hand, it was clear in his view that the economy would not avoid second-round effects either as the conflict dragged on. Eva Zamrazilová agreed that monetary policy should not react to the rise in oil prices itself, but should be vigilant for second-round effects spilling over to other price categories.
As regards the monetary policy decision, Jan Procházka said that in an environment of still restrictive monetary conditions, there was no acute pressure on the CNB to raise rates, although if the medium-term inflation outlook were to increase significantly due to second-round effects of the conflict, there was a need to stand ready to react by increasing rates. Jan Frait noted that the current inflationary shock had occurred in a situation where the domestic nominal interest rate level was relatively high compared to other European countries and real interest rates were positive. The CNB could therefore afford to assess the incoming data thoroughly and to take the necessary action if it saw commodity prices passing through to other sectors of the economy. In his opinion, however, there was no need to raise rates now; the current monetary policy stance was appropriate. Jakub Seidler felt that the likelihood of it being possible to weather the shock without a monetary policy response was gradually decreasing as the conflict dragged on. In his opinion, the no-response option was still open but required the situation to start normalising before long. Eva Zamrazilová also said that the longer the conflict went on, the more likely it was that a monetary policy response would be necessary. If she did not see any reassuring signals, it would thus be relevant for her to consider raising rates. Karina Kubelková added that the situation was less favourable than at the March meeting, but there was still scope for overcoming the existing uncertainty without a rate hike. Jan Kubíček said it was likely that the next rate movement would be an upward one, but in his view this was mainly because of domestic developments with inflationary potential, while monetary policy could largely look through the immediate impact of the negative supply shock from abroad.
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: Vojtěch Molnár, Monetary Department