No need to touch Czech interest rates despite upbeat core inflation

What the desk is arguing

ING argues that the Czech National Bank (CNB) should maintain current interest rates despite elevated core inflation, as headline inflation is mitigated by muted food prices. The bank believes that positive real interest rates already signal sufficiently tight policy, outweighing upside risks from regulated energy prices.

Supporting this view, ING points to opposing forces shaping core inflation: higher energy prices push up while tighter budgets pull down. With growth risks mounting, the bar for further tightening is high, making a hold the prudent course.

The desk implicitly rejects the notion that strong core inflation alone warrants a rate hike, emphasizing instead the lagged effects of past tightening and the need to support economic activity.

Where it sits in our coverage

Our internal consensus aligns with ING's cautious stance, though we see a lower probability of rate cuts in H1 2026 than the market prices. Our target for EUR/CZK is 25.00 for Dec-26, with a range of 24.50-25.50, reflecting a mild depreciation bias from current levels near 24.80.

ING's view is shared by several other houses. For instance, Barclays targets EUR/CZK at 25.00 for Dec-26, and JPMorgan targets 24.90 for Mar-26, both consistent with our view of a stable to slightly weaker koruna.

How other firms see it

ING's stance is largely aligned with consensus among CEE-focused analysts. Barclays and JPMorgan both anticipate CNB remaining on hold through 2025, with modest easing beginning in 2026.

However, some contrarians argue for earlier cuts: - BofA expects the first cut in Q1 2026, targeting EUR/CZK at 25.20 for Mar-26. - Goldman Sachs sees risks of a delay if core inflation proves sticky, with a Dec-26 target of 24.50.

These divergent views center on the persistence of services inflation and fiscal policy impact.