No need to touch Czech interest rates despite upbeat core inflation
The desk maintains that the Czech National Bank (CNB) will likely refrain from altering interest rates in the near term, despite recent positive core inflation data. Per the full note source, while core inflation remains elevated due to rising energy prices and tighter budgets, the overall inflation picture is tempered by subdued food prices. This suggests that the current monetary policy stance, characterized by positive real interest rates, is sufficiently stringent to manage inflationary pressures without stifling growth.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01ING sees no need for CNB rate changes despite elevated core inflation, citing positive real rates.
- 02Headline inflation is contained by muted food prices, but regulated energy prices remain a risk.
- 03Growth concerns and budgetary tightening provide a counterbalance to inflation pressures.
Market implications
The koruna may remain range-bound against the euro near 24.80-25.00, with upside risks from any hawkish surprise if regulated prices spike. The CZK curve may flatten as markets price a prolonged hold.
Risks to this view
Upside risk: Regulated energy prices drive core inflation higher, forcing a rate hike. Downside risk: Sharp economic slowdown prompts earlier easing than expected.
CENTRAL AND EASTERN EUROPE: Czech headline inflation is mitigated by the still muted food price dynamic. Meanwhile, core inflation is set to remain elevated while shaped by opposing forces of higher energy prices and tighter budgets. Regulated prices pose a risk to price stability, yet positive real interest rates suggest stringent enough policy as risks to growth mount
Sources & References
How we cover this story