MediumIV Macro Policy & Sovereign Debt5 November 2026, Thursday
Czech central bank lifts its rate to 4% on a split vote
The Czech National Bank raised its two-week repo rate by 0.25 points to 4% on 5 November; the decision passed 4–3 and was the year's second hike. The bank lifted its 2027 inflation forecast from 2.5% to 3.2%, and Prime Minister Babiš protested the move.
According to the bank's decision page, the discount rate rose to 3% and the Lombard rate to 5%, with the new rates taking effect on 6 November. Investing.com reports core inflation at around 3%, at the top of the bank's tolerance band; in the second quarter wages rose 6.4% and corporate lending 13% year on year. Headline inflation stayed close to the 2% target throughout the third quarter.
The constraint is not today's inflation but next year's forecast. The new projections cited by Around Prague put inflation at 2.1% in 2026 and 3.2% in 2027, while the 2026 growth forecast was cut from 2.2% to 1.7%. The bank was thus responding to a supply shock that drags growth down and pushes inflation up. According to ING, the bank's own path has the rate rising to 4.5% in the near term and falling to 3.5% by the end of 2028.
Governor Aleš Michl called the move fine-tuning and said it was not the start of a hiking cycle. ING wrote that a 4–3 split was unusual after a lengthy run of strong majorities, and that PRIBOR had risen to about 4.55%. Prime Minister Andrej Babiš told parliament that the hike would make mortgages more expensive again; the minutes will be published on 13 November.
Talay assessment
Bottom line
The 4–3 vote shows the Czech board divided over how far to go against energy-driven inflation in 2027. The bank's own path points to 4.5% while the governor rules out a cycle, and that contradiction keeps market pricing volatile. The most likely path is a hold in December, with any further step tied to inflation data in early 2027.
Likely effects
- MortgagesNegative1–6 months
With mortgage lending growing by about 10% a year, the hike raises the cost of new loans; existing fixed-rate borrowers are unaffected for now.
- KorunaUncertainWeeks
ING expects a range of 24.35–24.40 against the euro; the hike limits the currency's weakening but does not create lasting strength.
- Central bank independenceNegative6 months+
The prime minister's open protest raises the risk of political pressure over the next board appointments.
Possibilities, ranked
- 1Hold in December50%
The board stays at 4%, with any new step tied to data in early 2027.
Watch: The three dissenters' reasoning in the 13 November minutes
- 2One more hike35%
If core inflation stays above 3%, the rate moves towards the 4.5% in the bank's path.
Watch: Core inflation data for November and December
- 3Early reversal15%
If growth drops below even 1.7%, the hike is reversed in 2027.
Watch: Preliminary fourth-quarter GDP estimate
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Repo rate▲ 4.00%
- 2027 inflation forecast▼ 3.2%
- 2026 growth forecast▼ 1.7%