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 updated forecast, inflation will temporarily increase in late 2026/early 2027. Core inflation remains elevated. According to the Bank Board’s assessment, the rate increase in June has so far led to a sufficient tightening of monetary conditions. At the same time, growth in longer-term interest rates has brought about a tightening of financial conditions. This should help stabilise growth in new loans. By contrast, the upside risk to inflation stemming from commodity market developments has intensified. At its next meeting, the Bank Board will decide between keeping interest rates unchanged and raising them.

Prices are increasing above all in services, which are a major component of core inflation. A more lasting reduction in core inflation can be achieved with continued tight monetary policy. Elevated 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. Household consumption and investment by firms are increasing. Still elevated property price growth is having an inflationary effect.

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.

Economic developments

Year-on-year GDP growth slowed from 2.2% to 1.9% in 2026 Q2. Domestic demand is still the main source of economic growth. Unemployment remains low. Wage developments do not indicate an acceleration; however, long-term above-average wage growth is contributing to inflationary pressures from the domestic economy. These are reflected mainly in persistently elevated services inflation and significant growth in property prices.

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 increased 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 and pay claims. 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.