Central Bank stands pat at final 2025 meeting

CNB holds for fifth consecutive meeting: On 18 December, the Czech National Bank (CNB) opted to leave its two-week repo rate unchanged at 3.50%—the lowest level since late 2021. The fifth successive hold was unanimous among members present and matched market expectations; the loosening cycle that started in late-2023, which has seen the two-week repo rate halve, may have drawn to a close.

Hold comes amidst elevated inflationary risks: Despite a broad downtrend in inflation this year, the CNB stood pat due to looming inflationary risks threatening to boost services and housing price pressures ahead. Said risks would be catalyzed by a tight labor market with rising wages, as well as uncertainty around government spending.

Panelists split over 2026 monetary policy trajectory: While the Bank has suggested all options remain on the table, its new baseline scenario points to rates remaining on hold in the coming quarters. Over half of our panel of economists expects the CNB to stand pat through the end of 2026, while most of the rest has penciled in further reductions; one panelist expects the two-week repo rate to end 2026 above current levels. Future decisions will likely hinge on the strength of the koruna. Momentum in the Czech Republic’s top trading partner, Germany, remains key to monitor. The Bank will reconvene on 5 February.

Panelist insight: Commenting on the outlook, David Havrlant, chief economist at ING, stated: “Lower energy prices will likely bring next year’s headline inflation below the target, while core inflation will be exposed to opposing forces. A rate reduction is a viable option mid-next year if downward pressures dominate.”

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