The Czech National Bank raised its benchmark interest rate by a quarter of a percentage point to 4 percent on Thursday in a divided 4–3 board vote, marking its second increase of the year. Governor Aleš Michl characterized the move as policy fine-tuning to anchor inflation expectations, while Prime Minister Andrej Babiš sharply condemned the decision as scandalous.
The central bank’s policy-setting board delivered the quarter-point increase on Nov. 5, lifting the two-week repo rate to its highest level since early 2025. Alongside the benchmark change, the board raised the Lombard rate used for central bank lending against collateral to 5 percent and increased the discount rate to 3 percent, with all three adjustments taking effect Nov. 6, Econotimes reported.
The tightest possible majority of four board members backed the tighter stance, while three members voted to leave borrowing costs unchanged.
Governor Michl Defends Policy Fine-Tuning Amid Political Backlash
Governor Aleš Michl emphasized that the central bank was not embarking on a fresh cycle of monetary tightening, pointing instead to calibrated restraint aimed at preventing higher energy costs from feeding into broader price growth. We agreed that we aren’t starting a new cycle of interest rate increases, but we fine-tuned the monetary policy restriction,
Michl said, according to Briefs. He added, We will consider the next step very carefully, we will assess and discuss everything very carefully.
Prime Minister Andrej Babiš stepped up his public criticism of the monetary authority following the announcement, describing the board’s action as absolutely scandalous
and arguing that higher borrowing costs will penalize households and companies, Bloomberg reported. Babiš had previously labeled the official rate level incomprehensible
hours before the vote, linking high mortgage expenses directly to central bank policy.
Economic Forecasts Downgraded as Inflation Risks Persist
Accompanying the rate decision, the central bank released a revised macroeconomic outlook that lowered its economic growth projection for 2026 to 1.7 percent from an earlier estimate of 2.2 percent. Growth for 2027 is projected at 2.5 percent, down from 2.7 percent previously, while expansion in 2028 is expected to reach 2.3 percent, according to Expats.
The revisions follow preliminary figures showing annual inflation eased to 2.4 percent in October from 2.5 percent in September. Despite that slight slowdown, policymakers anticipate a temporary resurgence in consumer price growth heading into late 2026 and early 2027, driven by sticky services inflation, rapid wage gains in a tight labor market, and expanding credit. The bank now projects inflation to average 3.2 percent next year—0.7 percentage points higher than its August forecast—before easing to 2.3 percent in 2028.
Traders Weaken Koruna Against Euro After Split Vote
Financial markets showed a muted immediate reaction because investors had largely priced in the quarter-point adjustment. However, the domestic currency weakened up to 0.3 percent against the euro as traders trimmed exposure to further tightening. ING strategist Frantisek Taborsky noted that the 4–3 split vote is being interpreted by markets as a sign that the central bank’s willingness to continue raising rates is limited, TradingPedia reported.
ING maintains a relatively tight anticipated trading range for EUR/CZK between 24.350 and 24.400, expecting seasonal support for the koruna through November and December to help temper near-term weakening pressure. Dominik Rusinko, chief economist at Prague-based brokerage Patria Finance, observed that the narrow majority signals a cautious path forward. The tightest-possible majority in favor of today’s rate increase, together with the governor’s comments, suggest that the bank board’s willingness to continue with monetary policy tightening is rather limited,
Rusinko told Briefs.
The Czech National Bank’s next scheduled monetary policy meeting is set for Dec. 17, where the board will evaluate incoming data on wage trends, exchange rate dynamics, and fiscal developments.
