The Czech National Bank (CNB) kept its main interest rate at 3.5% (chart) after a unanimous decision of its board members on August 7.

The decision was widely expected on the local market. The rate has remained at 3.5% since May, when the board lowered it by 0.25 basis points.

“According to the new prognosis of the [CNB] monetary section, inflation should oscillate above 2% for the remainder of this year,” CNB stated in a press release, while CNB’s governor told the country’s media that inflationary risks remained in place.

The country’s inflation eased to 2.7% in July, according to the flash estimate released earlier this week by the Czech Statistical Office (CZSO), ahead of the CNB’s August board meeting.

The ease in overall inflation came amid continued falling prices of motor fuel, which decreased by 4.6% y/y in July. It was the only monitored item in decline in July. The July inflation rate is yet to be confirmed by CZSO. 

“From the domestic risks in the direction of higher inflation, there remains a risk of consistent price growth of services, including imputed rent, and food prices,” CNB stated, listing also “faster money production in the economy resulting from further reviving of loan activity, particularly on the real estate market” as a pro-inflationary risk.  

CNB expects inflation to average at 2.6% this year and ease to 2.3% next year. It has improved its projection of the country’s economy and expects gross domestic product (GDP) to grow by 2.6% this year as well as next year, and increase by 2.9% in 2027.

The economy is “driven mainly by household consumption,” CNB also noted, adding that unemployment remains low and year-on-year average wage growth “is one of the reasons for the consistent price growth of services.”  

CNB also adjusted its projection of the local currency koruna (Czech crown, or CZK) to an average of CZK24.9 for €1, which is a firming compared to the previous average projection of CZK25.3 for €1 from May.

The 3.5% interest rate in play is the lowest since May 2021, and local market analysts expect the rate to remain unchanged for the rest of the year.

“CNB board confirmed that the time for the stability of rates has arrived,” Raiffeisenbank analyst Tereza Krček was quoted as saying by the Czech Press Agency (CTK).