The Czech National Bank (CNB) left its key policy rate unchanged at 3.5%, a decision markets largely anticipated. The move prompted little immediate reaction in the Czech Koruna, as investors had already priced in a pause. The CNB also signalled it is not committing to a single path, keeping “all options open” for upcoming meetings while expecting rate stability in the first half of the year.

Although inflation has eased,  dropping to 1.6% in January from 2.1% in December, the CNB argues that monetary policy should remain relatively tight. Policymakers want to ensure inflation stays close to the target even after temporary factors fade. One key reason behind the recent decline is an administrative change that shifted payments linked to renewable energy from households to the state budget.

Rate cuts were discussed, but the CNB suggested any near-term easing would require clearer progress in core inflation, which better reflects underlying price pressures in goods and services not heavily influenced by regulation or volatile swings. The CNB last cut rates in May, reducing them by 0.25 percentage points.

Analysts generally see the hold as reasonable given continued risks, including wage growth, lingering service-sector price pressures, and uncertainty around public finances. At the same time, some economists believe further rate reductions later this year remain possible if inflation trends remain favourable and domestic pressures cool.

Source: ceskenoviny.cz

Author: CzechTrade and CzechInvest offices in New York