MONETARY POLICY REPORT | WINTER 2026 (appendix)
(authors: Jan Filáček, Lucie Kokešová Matějková)
Risk assessment is an integral part of monetary-policy decision-making. The Inflation and Monetary Policy Risks Scoreboard has been used for this purpose as a supporting tool since 2024. However, the domestic and international economic environment has recently seen a significant rise in volatility and uncertainty, affecting the behaviour of economic agents, inflation and financial conditions. The pandemic, the energy crisis, the war in Ukraine, geopolitical fragmentation pressures and changes in the global trade and investment order have led to numerous fluctuations that cannot be reliably interpreted solely within the framework of the traditional business cycle. In addition, the Czech economy is undergoing long-term structural changes – potential output growth is slowing, the labour market is evolving, technologies are changing and the corporate sector is adapting to new global conditions.
Under these circumstances, tools focusing solely on quantifying the overall monetary policy risks are not sufficient. For making decisions on the monetary policy stance, there is also a need for a system of indicators that makes it possible to identify both short-term deviations from structural trends and shifts in long-term trends.
The Scoreboard has therefore undergone a conceptual upgrade and has been divided into two complementary parts: (i) a visually intuitive heatmap of cyclical indicators, which provides a quick overview of short- to medium-term deviations from the reference values, and (ii) a set of charts capturing the evolution of structural indicators and the longer-term trends in the economy, enabling deeper structural processes to be monitored – processes with the potential to shift equilibria in the economy and change the transmission of monetary policy. This approach supports the Bank Board’s decision-making and the identification of risks and uncertainties to the outlook for the fulfilment of the inflation target in an increasingly dynamic and complex economic environment.
The need for clearer communication is another reason for the transition to the new Scoreboard. Especially in turbulent times, it is essential for a central bank to transparently communicate its actions and the risks of future developments to the public, businesses and investors.
1. Cyclical Scoreboard – heatmap
The cyclical indicators contained in the first part of the Scoreboard relate to the current economic situation and have a clear link to current and expected inflation. They illustrate the relevance and direction of the short- to medium-term risks of the outlook for the fulfilment of the inflation target and are divided into five subcategories: economic activity, price developments, the labour market, monetary and fiscal indicators, and external relations. The visualisation of these indicators – and combinations thereof – helps to identify risks of the outlook for the fulfilment of the inflation target more precisely. The individual cyclical indicators in the heatmap are formulated and presented in such a way that it is clear whether they are sending an inflationary or anti-inflationary message. The aim of the Scoreboard is to signal potential risk factors for domestic inflation in good time and regardless of the modelling approach used. The overall balance of risks, however, cannot be derived by merely summing the indicators; it must be assessed in the context of the probability that the risk factor will persist and the intensity and timing of its impact on inflation. The Scoreboard cannot capture qualitative risks.
Given the nature of the cyclical indicators, it is also possible to set reference and critical values for them. Reference values are defined as the long-term averages of the indicators or as their steady-state or monetary policy-neutral levels. Critical values are determined as multiples of standard deviations from the reference value in both directions.
The colouring of each series is based on a comparison of the current level of the indicator with its reference value. Deeper shades of red signal that the indicator is deviating from its long-term average or risk-neutral value towards an inflationary effect. Conversely, shades of blue indicate a deviation towards an anti-inflationary effect. Neutral effects are shown in white.
Table of cyclical indicators
Note: For the calculation of averages and standard deviations, the period 2010–2025 was used, excluding the years 2020–2023, when most indicators were distorted by the episode of high inflation. The reference values will be regularly revised.
2. Structural trends in the economy
In illustrating structural trends, the objective is to graphically depict long-term developments which, in certain circumstances, could lead to shifts in equilibrium values and to changes in monetary policy transmission. If the central bank were to ignore these structural changes, its interest rate settings might not be optimal, and the achievement of price stability could be put at risk.
The set of structural indicators is relatively broad and captures the key structural characteristics of the Czech economy. In addition to commonly monitored indicators such as the level of indebtedness, the unemployment rate, the openness of the economy, the relative price level and the yield differential, the structural Scoreboard includes other indicators such as housing affordability, the financial cycle indicator and demographic change. The basic logic of each of the structural indicators is briefly described below.
Table of structural indicators
The relative price level and the relative economic level are measures of the Czech economy’s convergence towards advanced European countries. If the domestic price level is below that of our western neighbours, economic shocks may have stronger price effects in the Czech Republic than, for example, in Germany.
A rising share of the service sector in household consumption and in employment in the case of the Czech economy indicates that – since a large proportion of services are non-tradable – the sensitivity of the domestic economy to foreign shocks and exchange rate movements is decreasing. This strengthens the interest rate channel of monetary policy, while the exchange rate channel weakens.
Housing affordability, measured by the price-to-income ratio (PTI, the ratio of property prices to households’ disposable income), indicates the risk of overvalued property prices. This may influence the optimal level of interest rates and alter the response of the housing market and the household sector to changes in interest rates.
The financial cycle indicator is a composite indicator that captures the financial system’s aggregate tendency to swing up and down. It therefore provides information on the position of the economy in the financial cycle. Sharp changes in interest rates affect asset prices and simultaneously influence the ability of firms and households to service their debt, thereby potentially amplifying the financial cycle.
The non-accelerating inflation rate of unemployment (NAIRU) is the unemployment rate consistent with stable inflation. A declining NAIRU indicates the ability of the economy to sustain low unemployment without generating inflation pressures. Several methods are used to estimate the NAIRU. The chart shows their range and average.
The debt-to-GDP ratios of the various sectors of the economy (non-financial corporations, households and general government) are a measure of the risk of excessive indebtedness. If the debt of these sectors rises above a sustainable level, their capacity to absorb the effects of the economic cycle decreases. For example, high government debt limits the scope for fiscal expansion during a recession. The Maastricht criteria define the government debt risk threshold as 60% of GDP. In the Czech Republic, under the Fiscal Responsibility Act, the debt brake is activated if government debt exceeds 55% of GDP.
Euroisation of loans, which is most evident in the non-financial corporations sector, makes firms less sensitive to koruna interest rates. This may reduce the effectiveness of domestic monetary policy transmission, while firms’ sensitivity to movements in foreign interest rates may increase.
The long-term yield differential between the Czech Republic and abroad (Germany) is a comprehensive indicator of market perceptions of future economic conditions and risks. An excessive widening of the differential may indicate elevated inflation expectations and growth in the risk premium.
The international investment position measures the country’s net financial position with respect to the rest of the world. The Czech Republic’s position has long been negative due to inflows of foreign direct investment. However, an excessively negative investment position may signal that the economy is in external imbalance.
In the presence of an external imbalance, it is important to assess whether this imbalance is financed by long-term or short-term debt. Short-term debt shows the amount of capital that, under unfavourable conditions, could leave the economy quickly, thereby potentially creating depreciation pressure on the currency and thus upward pressure on inflation. The central bank should have sufficient resources available for timely intervention should such a situation arise. For this reason, the ratio of foreign exchange reserves to short-term debt is also monitored.
The openness of the economy, measured by the share of exports or imports in GDP, indicates the degree of economic vulnerability to foreign shocks. Growing openness at the same time increases the relative weight of the exchange rate component of the monetary conditions in the transmission of interest rates to inflation.
The final indicator monitors demographic change from the perspective of the age structure of the population. The Czech Republic – like most countries in the world – faces population ageing and declining birth rates. This trend is being partially offset by migration, but even so, the ratio of people aged 0–19 and 65+ to the economically active population aged 20–64 (the dependency index) is rising. Population ageing may foster lower equilibrium interest rates.
Conclusion
The new Scoreboard provides a more comprehensive view of the risks and uncertainties of the outlook for the fulfilment of the inflation target. Its cyclical part – the heatmap – captures short-term risks, while its structural part highlights long-term risks. The Scoreboard is one of the inputs to the CNB Bank Board’s monetary policy decision-making, which relies primarily on the quarterly macroeconomic forecast prepared by the Monetary Department. Compared with the forecast, the Scoreboard offers a supplementary perspective on the cyclical position of the economy, including in areas not captured by the forecast, such as the quantity of money in circulation and inflation expectations. The charts of structural indicators provide a longer-term context for decisions on the monetary policy stance.
The Scoreboard is published regularly in the Chartbook, a graphical appendix to the Monetary Policy Report, see current issue of Chartbook – Winter 2026. The indicators included may change over time in line with current monetary policy needs.