EMEA Economic Perspectives "Czechia: CNB likely on hold as inflation mod..."

Research evidence excerpt

EMEA Economic Perspectives "Czechia: CNB likely on hold as inflation mod..."

forecast. While inflation remains within the CNB’s tolerance band and is unlikely to

materially alter the near-term policy outlook, underlying pressures persist, supported by

elevated real estate price growth, the contribution of imputed rents to core inflation,

and firm wage dynamics.

As highlighted in our previous note, the CNB continues to adopt a wait-and-see

approach, focusing on the emergence of second-round effects rather than reacting to

first-round shocks. This is consistent with communication from the May MPC meeting,

where the board members noted that policy was already “relatively tight” and provided

room to assess incoming data without rushing into a decision. In this context, Deputy

Governor Zamrazilová emphasised that the current policy stance allows the CNB to

evaluate the situation and that a policy response would depend on evidence of broader

inflationary pressures and second-round effects. This is supported by broadly unchanged

financial conditions, with the koruna remaining stable and the impact of its real

appreciation offset by easing real rates.

Against this backdrop, while the baseline remains that the CNB will stay on hold, a rate

hike cannot be fully excluded, given the persistence of strong wage growth and elevated

services inflation, which could lead to a more sustained pickup in underlying inflation

pressures.

We would like to acknowledge Tanishaa Mehdiratta for her assistance in preparing this

report.

Figure 1: Headline inflation and policy rate, % y/y Figure 2: Key components of the preliminary release, % y/y

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