Czech Prime Minister Andrej Babis publicly opposed the Czech National Bank's (CNB) decision to raise interest rates on Thursday, just before the central bank's policy meeting. Babis stated that inflation in the Czech Republic remains among the lowest in the European Union and that current rates already exceed those in the Eurozone, questioning the rationale for increasing them. He warned that a rate hike would make life more difficult for citizens and businesses. Babis had previously urged the central bank to cut interest rates in May 2026, despite growing inflation risks from energy prices.
Despite the Prime Minister's opposition, the CNB's board voted to raise its two-week repo rate by 25 basis points to 3.75%, marking the first rate hike since 2022 and the first under Governor Ales Michl. The lombard rate was also increased to 4.75% and the discount rate to 2.75%. Six of the seven board members voted for the increase, with one voting to keep rates unchanged. This move aligns with market and analyst expectations, as 13 out of 22 economists in a Bloomberg survey anticipated a quarter-point increase.
Governor Ales Michl justified the rate hike by citing concerns about higher inflation, stating that risks in the Czech economy are skewed towards increased inflation. He had indicated a week prior that a June rate hike was a "real possibility" due to domestic risks from robust wage increases and persistent growth in service and housing prices. The central bank emphasized its independence from the government in making this monetary policy adjustment, which is the first change in 13 months, with the base interest rate now at a level last seen in early May of the previous year.
