Czech National Bank preview: Stable rates amid uncertain times
The desk expects the Czech National Bank (CNB) to maintain its policy rate at 3.75% in the upcoming meeting, reflecting a cautious approach amid rising input costs and geopolitical uncertainties impacting economic performance. Per the full note from ING, the combination of meager growth—real GDP expanded just 0.4% QoQ in Q2 2026—and an uptick in unemployment to 3.3% in June supports a steady rates stance, especially given that inflation is not projected to accelerate uncontrollably despite higher oil prices. With the economy running below potential, risks from global turmoil further complicate the outlook, casting doubt on the near-term GDP forecast and primarily burdening Czech exporters. This emphasizes the current environment, where the CNB seems to prioritize stability over aggressive monetary adjustments, which aligns with our centralized expectations for this currency space.
What the desk is arguing
The desk frames this as a prudent decision by the CNB to keep rates steady amidst significant external pressures and internal economic sluggishness. Given the uncertain global landscape, particularly following developments in the Middle East, an unchanged monetary policy aligns with the bank's goal of fostering economic stability.
Key indicators such as the recent quarterly GDP growth of just 0.4% and rising unemployment signal underlying vulnerabilities that the bank must consider. With most sectors moderately performing and concerns about fixed investments emerging, a stable rate posture is vital to mitigate further economic decline.
Where it sits in our coverage
Our consensus target for the EUR/CZK pair currently sits at 1.075, with a range between 1.04 and 1.12. Notable targets include: - jpmorgan: 1.10 by Mar'26 - bofa: 1.04 by Mar'26
This view is closely aligned with bofa’s target but diverges from jpmorgan's more optimistic stance, placing our expectation firmly at the mid-range of the current consensus.
How other firms see it
The consensus among aligned firms indicates a belief in the CNB’s stable approach in light of economic uncertainty, with firms like jpmorgan agreeing on a more bullish outcome. Conversely, bofa presents a contrasting outlook, suggesting more caution is warranted given global pressures.
Currency pairs such as EUR/CZK will be closely monitored as they reflect market responses to CNB monetary policy decisions. Additionally, movements in USD/CZK may also provide valuable insights into how FX traders are reacting to broader market conditions beyond the Czech borders.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Expect CNB to keep policy rates unchanged at 3.75% amid rising economic pressures.
- 02Real GDP growth was only 0.4% QoQ in Q2 2026, reflecting underperformance.
- 03Unemployment has ticked up, indicating increased economic distress.
- 04External geopolitical risks are complicating the domestic economic outlook.
Market implications
Traders should focus on levels around 1.075 for EUR/CZK, as this reflects the current consensus on CNB policy continuity. With no major events on the horizon, market positioning should be evaluated for responsiveness to geopolitical shifts impacting the Czech Republic.
Risks to this view
Key risks to our outlook include a sudden deterioration in the global economy, which may pressure the CNB to reconsider its stance on rates. Additionally, if inflationary pressures were to unexpectedly heat up due to external shocks, the CNB could be compelled to adjust rate policies sooner than anticipated.
Articles Czech National Bank preview: Stable rates amid uncertain times Published 13:47 Czech Republic Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Rising input costs and elevated uncertainty are weighing on economic performance, while inflation is unlikely to spiral out of control despite higher oil prices. With the economy operating below its potential and real interest rates still positive, an unchanged monetary policy setup is the best way forward. It’s hard to gauge how much Hormuz will bite David Havrlant and Frantisek Taborsky The Czech National Bank in Prague Meagre growth and higher unemployment are dark prodromes We expect the CNB to leave the policy rate unchanged at 3.75% at its next meeting on Thursday 6 August, as the risks to economic activity linked to the Middle East war start to materialise.
The recent escalation is likely to add further headwinds to economic activity. Rising input costs and elevated uncertainty are weighing on the global economy, which is bad news for Czech exporters. This geopolitical shock makes the near-term GDP outlook harder to predict.
Czech real GDP gained 0.4% QoQ in the second quarter of 2026, and rose by 2.0% YoY, which was below market expectations. Quarterly dynamics were positively influenced by final consumption expenditure and foreign trade, while gross capital formation had a negative impact. We don’t know yet whether it’s about inventories or fixed investment, although fixed investment tends to be the first casualty of significant uncertainty.
The gross value-added quarterly gain was mainly supported by manufacturing; most service sectors also performed well. Employment rose by 0.2% QoQ and by 0.9% YoY in 2Q26. The general unemployment rate ticked up to 3.3% in June, according to the CZSO survey, moving further away from the lows recorded at the end of 2022.
Both real GDP and consumption set to slow down Source: CZSO, ING, Macrobond "> Source: CZSO, ING, Macrobond We see the softish reading as supporting our hypothesis that the turmoil in the Middle East will eventually take its toll on real activity. As with any negative supply shock, the initial impact comes through higher prices, while the drag on growth tends to emerge with a lag. The direct price effects are relatively straightforward to quantify in terms of both magnitude and timing, while the impact on economic performance is trickier.
Economy slides below its potential For instance, the estimates of adverse effects on activity are distorted by firms pre-stocking to avoid higher prices in the future and shield themselves against supply chain distortions. With that in mind, it still may be the case that 3Q26 will feel most of the impact. The fact that an impact is delayed does not represent a relevant reason for complacency.
Still, we maintain our forecast of Czech economic expansion at 2% for this year and 2.4% in 2027. However, we see downside risks to both forecasts, should the Hormuz conflict drag on or suggest more severe than expected distortions to the global economy. Negative output gap suggests benign inflationary pressures Source: ING, Macrobond "> Source: ING, Macrobond Private consumption seems able to withstand the heat for now, yet we must see the detailed GDP breakdown to make well-anchored conclusions.
In any case, the first signals are becoming tangible: that elevated input costs, ample uncertainty, pressure on global demand, and the induced neck-breaking competition will affect Czech economic performance. Our estimates suggest that the economy slides back into a negative output gap territory, operating below its full potential. This means that the overall price level does not tend to accelerate, implying no need for stricter monetary policy.
The thing is that once consumers start hitting the brakes, softer demand will sooner or later affect the ability to raise prices. Inflation to remain under control despite higher oil prices Brent crude prices hovering around US$90/bbl until October – our current assumption – does not suggest that either headline or core inflation will end up far away from the target on average for this year and the next. Both rates are about to briefly cross the 3% threshold, yet with a significant contribution of a low comparison base from a year earlier.
With such a profile, price stability does not seem to be at risk now and on the relevant monetary policy horizon. Base effects impact annual headline inflation Source: CNB, ING, Macrobond "> Source: CNB, ING, Macrobond We expect July’s headline inflation to increase to 1.7%, with a significant contribution from rising fuel prices. The government support in the form of a reduced excise tax on diesel and a cap on margins at fuel stations ended last week.
Early fuel price surveys suggest that margins are rebounding sharply, although this assessment relies on a significant degree of judgement given the limited data available at this stage. That said, fuel prices remain unusually volatile and could still surprise in either direction. For now, we expect annual core inflation to remain broadly stable at 2.8% in July.
Stable rates are the likely outcome A booming housing market and ample credit dynamics may still be perceived as an issue to tackle through stricter monetary policy. However, the M2 monetary aggregate does not suggest that there is currently an excessive amount of money in circulation when compared to the historical average. In the labour market – maybe.
Yet, the recent monthly data from industry point to a softening annual wage dynamic. Add the upward-trending unemployment rate from late-2022 along with the negative output gap, and you may get an impression that the labour market is getting rather relaxed. M2 expansion below historical average Source: CZSO, ING, Macrobond "> Source: CZSO, ING, Macrobond We think most of the recent comments from members of the bank board support a long-term 'wait-and-see' approach.
In fact, we believe that monetary policy should proceed with a fair amount of caution, given the heightened uncertainty and dampening effects on economic activity still likely to remain in the pipeline. That means we assess today’s real GDP and labour market readings as reasons for not tightening monetary policy conditions any further. Expect a not-so-scary inflation outlook, and an unchanged policy rate at 3.75%, as the most likely outcome for some time.
The Labour market seems to be relaxing Source: CZSO, ING, Macrobond "> Source: CZSO, ING, Macrobond The new CNB forecast is likely to show softer GDP growth compared to the previous outline, and possibly a slightly lower inflation rate. With that, we expect a marginally lower trajectory for rates. Wages will be tricky due to the punchier 1Q26 reading than assumed, but at the cost of downward revisions in the previous two years.
Considering the vote, this time we expect a unanimous vote for rate stability. Even the usual hawks such as Eva Zamrazilova and Jan Kubicek will likely be in favour of assessing the situation and not be hasty to an even tighter monetary setup right now. The interesting thing will be the level of hawkishness delivered in the press conference and later in the CNB minutes.
Our market views Following the June rate hike, markets view the CNB as the most hawkish central bank in EMEA, with CZK rates also showing the highest sensitivity to oil prices. In recent days, market pricing has moved from 90bp of additional tightening to around 55bp. This remains well above our forecast for no further hikes, and we think markets could price out more tightening after next week’s CNB meeting if oil prices stabilise or fall from current levels.
At the same time, we expect markets to keep one additional hike priced in for longer as a hedge against a sudden shift in the CNB’s tone. The August forecast should also show a slightly more favourable inflation picture than in May, given repeated downside surprises in headline inflation and signs of weaker economic activity. This should ease market concerns about further hikes, even if the CNB is likely to keep the option of one more hike on the table.
Elevated rate-hike expectations and market pricing have helped keep the koruna stable relative to CEE peers. However, as rate-hike expectations are gradually priced out, the koruna could become an underperformer if a weaker US dollar continues to support EM currencies. That said, the repricing alone is unlikely to significantly undermine CZK strength, and we expect EUR/CZK to stabilise around 24.250 next week.
On rates, we expect the front end of the curve to price out one hike while keeping one hike in the curve for now. The curve has already steepened somewhat, and the long end remains high given very low inflation. Looking ahead, we therefore expect yields to decline across the curve rather than see further steepening, unless geopolitical risks re-escalate.
Real GDP Output gap Monetary policy Interest rates Inflation Forecast Czechia CNB Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors David Havrlant Chief Economist, Czech Republic David joined ING in 2024 as Chief Economist for the Czech Republic.
He gained professional experience at the Czech National Bank and international institutions such as the ECB, the EC,… Frantisek Taborsky EMEA FX & FI Strategist Frantisek is an FX & FI Strategist covering EMEA markets, having joined the bank in 2022. He provides short- and medium-term recommendations for ING's corporate and institutional client… In this article Meagre growth and higher unemployment are dark prodromes Economy slides below its potential Inflation to remain under control despite higher oil prices Stable rates are the likely outcome Our market views
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