Czech Economics: CNB Minutes Confirm Preventive Rate Hike, Not a Tightening Cycle

Research evidence excerpt

Czech Economics: CNB Minutes Confirm Preventive Rate Hike, Not a Tightening Cycle

l futures, however, imply oil prices significantly

below all three scenarios (see Figure 3). A similar picture emerges for natural gas

price assumptions. While Brent crude oil is currently trading around 40% below its

late April peak reached during the Middle East crisis, European natural gas prices

have fallen even more sharply, declining by around 45% from their March peak. At

approximately EUR 40/MWh, gas prices are now broadly in line with the level

assumed under the CNB’s lower energy prices scenario for Q2 2026, whereas the

higher energy prices scenario assumed a price of EUR 55/MWh. Should Brent oil

price remain close to current low levels around USD 73/bbl, the CNB's core g3+

forecasting model would, ceteris paribus, imply lower policy rates (see Figure 4).

What initially represented an external upside inflation risk has therefore, relative to

the assumptions of the May baseline forecast, turned into a downside inflation risk

on top of the still elevated domestic inflationary backdrop. This conclusion is

reinforced by the fact that the baseline scenario of the updated May forecast

actually assumed an even higher oil price than the original May forecast itself.

Although the CNB does not publish the implied interest rate path associated with

interim forecast updates, it is highly likely that the assumption of substantially

higher oil prices, in addition to persistent domestic inflationary pressures,

contributed to the Bank Board's decision to raise interest rates already at the June

meeting. Since then, however, oil prices have fallen sharply amid progress towards

ending the conflict in the Middle East. This development may therefore provide a