Introduction
On June 26, 2025, the Czech National Bank (ČNB) announced it would keep its base interest rate unchanged at 3.5%, as widely anticipated by analysts. This marks a pause in the monetary easing cycle that began in late 2023, justified by persistent inflationary pressures, particularly in the services sector. The decision reflects the central bank’s cautious approach amid ongoing global economic uncertainty.
A Pause, Not an End
According to Petr Dufek, Chief Economist at Creditas Bank, this is a temporary pause rather than the end of the rate-cutting cycle. While inflation has come close to the 2% target, reaching 2.4% in May, the underlying trends warrant caution, especially with prices in services and the real estate market still on the rise.
Monetary Policy in Global Context
The ČNB’s base rate remains 150 basis points higher than that of the European Central Bank, but still lower than those set by other regional central banks, such as Hungary and Poland, or the U.S. Federal Reserve. This positioning highlights the ČNB’s balancing act between keeping inflation under control and supporting economic growth.
Inflation Controlled, But Not Everywhere
Governor Aleš Michl confirmed that there is no room for immediate rate cuts. The current tight monetary policy aims to ensure that Czech inflation remains near the 2% target over the long term. However, the risks of rising inflation have intensified due to:
- a possible revival in real estate lending,
- rapid wage growth,
- increasing public spending.
Service and food prices remain the most significant threats.
What’s Next? Possible Rate Cut in August
A rate cut could still happen as early as August, depending on global conditions. Key factors to watch include:
- the outcome of EU–US trade talks,
- commodity market trends,
- preliminary crop forecasts, which will influence food price expectations.
On the other hand, a slowdown in the global economy, exacerbated by conflicts in Ukraine, the Middle East, or escalating trade wars, could push inflation downward, reducing the need for rate cuts.
Lombard and Discount Rates Also Unchanged
In addition to the base rate, the ČNB left:
- the Lombard rate at 4.5%, and
- the discount rate at 2.5%.
These rates govern borrowing and certain penalty-related charges. Their stability further underscores the central bank’s wait-and-see strategy.
Conclusion
The Czech National Bank’s decision to hold its base rate at 3.5% signals a strategic pause in a still-sensitive economic climate. While headline inflation appears under control, deeper structural pressures, particularly in services and housing-remain unresolved. The coming weeks will be key to assessing whether the ČNB can resume rate cuts or if continued restraint will be needed.
AI – generated image.
Sources: https://www.novinky.cz/clanek/ekonomika-zakladni-sazba-zustava-na-35-procenta-40527524
