Central Bank stands pat in March

Bank pauses its loosening cycle: At its meeting on 26 March, the Czech National Bank (CNB) decided to maintain its two-week repo rate at 3.75%. As a result, the CNB paused its monetary policy easing cycle—which has seen a cumulative 325 basis points of cuts since December 2023—for the second time in four months. Once again, the decision was unanimous and aligned with market expectations.

Worsened inflation outlook drives decision: The Bank’s decision followed an upward revision to its inflation forecast, with the CNB now expecting inflation to remain above the 2.0% target through 2025 and to hit it only in 2026. The Bank also noted persistent inflationary risks amid stronger wage growth in the services sector, a higher likelihood of EU retaliatory tariffs on U.S. exports, and fiscal stimulus in Germany—the Czech Republic’s main trading partner.

Easing cycle to resume, but cautiously: The Central Bank stated that it “is ready to react appropriately to any materialization of the risks of the outlook” given lingering upside risks to inflation. Our panelists expect 25–75 basis points of additional rate cuts in 2025, likely from Q2. That said, stickier-than-expected services inflation, rising international trade frictions and Germany’s fiscal stimulus could push our panelists to revise their forecasts for interest rates upward. The Bank will reconvene on 7 May.

Panelist insight: Commenting on the outlook, ING’s David Havrlant stated: “With the economy still operating below its potential, our take is that there is still room for some rate reduction, though limited. Substantial growth barriers of a structural nature are still present in Europe and are waiting to be tackled.” Similarly, Jiri Polansky, analyst at Erste Bank, said: “Following today, we see no reason to change our forecast, and we continue to expect rate cuts in August and November 2025, with an additional cut in May 2026, bringing the CNB's main rate to 3%. We continue to see risks as elevated, affecting both the cyclical development of the economy and the long-term outlook for interest rates, as well as short-term data volatility. Overall, risks currently lean towards the pro-inflationary side.”

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