Statement of the Bank Board for the press conference following the monetary policy meeting

Decision

At its meeting today, the Bank Board kept interest rates unchanged. The two-week repo rate thus remains at 3.75%. All seven members voted in favour of this decision.

Today’s decision reflects the updated inflation outlook and its risks and an assessment of new data. According to the Monetary Department’s updated forecast, inflation will be slightly above the 2% target throughout 2025 and fall to the inflation target in 2026. However, inflationary risks persist, requiring continued slightly restrictive monetary policy.

In particular, growth in services prices remains elevated, reflecting past cost shocks and current swift wage growth in this sector. In addition, risks associated with increasing tariffs globally have risen substantially since the last monetary policy meeting. The potential introduction of retaliatory tariffs on imports from the USA would foster higher prices of imported products. Moreover, newly announced plans regarding fiscal expansion in Germany are reducing the probability of a negative scenario of a marked downturn in the German economy. The balance of the risks of the outlook for the fulfilment of the inflation target has thus become more inflationary.

Today’s decision aims to stabilise headline inflation close to the 2% inflation target in the long run. This requires growth in the quantity of money in the economy not to accelerate excessively and credit growth to remain moderate. By ensuring this, monetary policy will help keep inflation low.

At its meetings ahead, the Bank Board will base its decisions on an assessment of newly available data and their implications for the inflation outlook. Its considerations about the interest rate settings will depend mainly on an evaluation of the persistence of the low-inflation environment, koruna exchange rate developments, the effect of fiscal policy on the economy, an analysis of the tightness in the labour market, and the evolution of domestic and external demand. The Bank Board will also monitor the actions of key foreign central banks, geopolitical events and developments in trade relations between the USA and Europe. It will also assess the transmission of interest rate cuts to lending activity, asset prices and subsequently real economic activity and prices.

The Bank Board confirms its determination to continue its monetary policy in order to maintain inflation near the 2% target in the long term. At present, this still requires tighter monetary policy.

Economic developments

GDP rose by 1.8% year on year in 2024 Q4. Economic growth was 0.4 percentage point faster than assumed in the February forecast. Household consumption in particular surprised, as its recovery is gathering pace. Conversely, external demand remains weak. This, together with subdued sentiment, is leading to low investment activity of companies.

The labour market tightness persists. Average wage growth in market sectors stood at 8.3% year on year in 2024 Q4, 0.6 percentage point faster than forecasted.

Inflation has remained within the tolerance band of the CNB’s target since last January. In 2024, the average annual inflation rate was 2.4%, the lowest figure in six years. At the start of this year, inflation developed broadly in line with the forecast. In particular, growth in services prices remains elevated, reflecting rapid wage growth.

Risks and uncertainties

The Bank Board assessed the risks and uncertainties of the outlook for the fulfilment of the inflation target as inflationary overall. As regards domestic inflationary risks, the risk of higher-than-expected inertia in services and food inflation persists. Potential additional growth in total public sector spending would lead to a risk of fiscal policy having an inflationary effect. Increased wage demands in the private and public sector are an additional upside risk. An inflationary risk in the longer term is a potential acceleration of money creation in the economy stemming from a further stronger recovery in lending activity, especially on the property market. The risk of escalating trade wars is an inflationary risk from abroad, especially in the short term. However, trade wars could foster a slowdown in global economic activity in the longer term. The risk of markedly weaker German economic output is partly offset by the planned fiscal stimulus of the new German government.

Statutory mandate

The Bank Board assures the public that the CNB’s actions will be sufficient to maintain price stability in accordance with its statutory mandate. In addition, the Bank Board is ready to react appropriately to any materialisation of the risks of the outlook for the fulfilment of the inflation target.

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