Statement of the Bank Board for the press conference following the monetary policy meeting
Decision
At its meeting today, the Bank Board kept interest rates unchanged. The two-week repo rate thus remains at 3.75%. All seven members voted in favour of this decision.
Inflation has been close to the 2% target since January 2024. According to the Monetary Department’s new forecast, inflation will temporarily increase slightly in late 2026/early 2027. Core inflation has remained elevated at just below 3% for eight months without showing a significant downward tendency.
A more lasting reduction in core inflation can be achieved with sufficiently tight monetary policy. Accelerating credit growth and debt financing of increased public expenditure are fostering a rise in the quantity of money in the economy. The labour market remains tight and wages are rising at a rapid pace. Prices are increasing above all in the service sector, whose price dynamics are a substantial component of core inflation. Household consumption is also increasing. Still elevated property price growth is having an inflationary effect.
The rate increase at the previous meeting brought about the desired tightening of monetary conditions. The main strategy now is a period of assessing new data, the outlook, inflationary risks and the effect of monetary policy restriction.
Today’s decision aims to keep headline inflation stabilised close to the 2% inflation target over the monetary policy horizon. This requires credit growth not to be excessive and, therefore, growth in the quantity of money in the economy to remain appropriate. By ensuring this, monetary policy will help keep inflation low.
At its meetings ahead, the Bank Board will base its decisions on an assessment of newly available data and their implications for the inflation outlook. The Bank Board will consider further actions very carefully. Its considerations about the interest rate settings will depend mainly on an evaluation of the persistence of the low-inflation environment, koruna exchange rate developments, the effect of fiscal policy on the economy, an analysis of the tightness in the labour market, and changes in domestic and external demand. The Bank Board will also monitor the actions of key foreign central banks, geopolitical events, the situation on foreign financial markets and developments in trade relations between countries. It will also assess the transmission of monetary policy to domestic lending activity, asset prices – above all property prices – and subsequently real economic activity and prices.
The Bank Board confirms its determination to continue its monetary policy in order to maintain inflation near the 2% target in the long term. At present, this requires relatively tight monetary policy.
Outlook
According to the Monetary Department’s new forecast, inflation will average 2% this year and 2.5% next year.
The outlook for Czech GDP growth this year has been lowered from 2.5% to 2.2%. Next year, the forecast expects GDP to grow by 2.7%.
Risks and uncertainties
The Bank Board assessed the risks and uncertainties of the outlook for the fulfilment of the inflation target as inflationary overall. Persistence of core inflation is a risk in the coming months. It is reflected above all in elevated services inflation, including housing prices. A possible acceleration in the growth of the money supply in the economy caused by lending to households and general government is another domestic upside risk to inflation. A possible year-on-year increase in the public finance deficit would lead to a risk of fiscal policy having an even greater inflationary effect. Continued rapid wage growth related to persistent tightness in the labour market is an additional inflationary risk.
The Bank Board will continue to closely monitor the macroeconomic impacts of the conflict in the Middle East. For the Bank Board, it is important to prevent the impacts of the conflict to date from passing through to elevated inflation expectations in the Czech Republic. This time, the domestic economy was subjected to the cost shock in good starting condition. Monetary policy has remained tight for some time and inflation has been at the target level for more than two years.
By contrast, the weak performance of some euro area economies and a possible global correction of asset prices in an environment of increased geopolitical uncertainty and high levels of debt in some developed countries may have an anti-inflationary effect. Trade barriers and uncertainty connected with their intensity also remain a risk to global economic activity. The development of the war in Ukraine still represents an uncertainty.
Statutory mandate
The Bank Board assures the public that the CNB’s actions will be sufficient to maintain price stability in accordance with its statutory mandate. In addition, the Bank Board is ready to react appropriately to any materialisation of the risks of the outlook for the fulfilment of the inflation target.