Czech National Bank board member Jakub Seidler favors a 25-basis-point interest rate hike at the bank’s November 5 meeting. He cited strong domestic demand and high energy prices as factors contributing to inflationary pressure in the Czech economy.
Seidler expressed support for a 25-basis-point hike, noting recent economic trends justify the move, though he has not yet examined staff reports before the gathering.
Limited tightening cycle anticipated
He emphasized that any increase in November would not necessarily initiate a prolonged cycle of monetary tightening. Decisions would need to be evaluated at each meeting due to uncertainty in the global economy.
In June, the Czech National Bank hiked its main policy rate by 25 basis points to reach 3.75%. It became the first Central European central bank to tighten policy due to Middle East conflict-related inflation.
Market expectations versus economist surveys
Current market pricing anticipates four rate hikes over the next 12 months. Seidler called this outlook excessive, noting that surveys showed economists expected less tightening.
Yet, he noted investors hesitate to bet on a milder path because any further Middle East conflict escalation could rapidly shift expectations and force position closures.
Rising long-term bond yields have tightened financial conditions, partly through their impact on mortgage rates. This has given the central bank time to assess the need for a policy response to inflation.
Inflation and economic growth outlook
The effects of the Iran conflict and the resulting energy crisis are already evident in the Czech economy. Producer price inflation accelerated to 3.7% year-on-year in September, driven largely by higher prices for coke and refined petroleum products, electricity, and gas.
Agricultural producer prices are also expected to rise year-on-year, while services prices remain high. Seidler forecasts headline inflation, which was 2.5% in September, to temporarily climb to an average of about 3.5% in the first quarter of 2027.
This would place inflation above the Czech National Bank’s tolerance range of 1% to 3% around its 2% target. Crude oil and natural gas prices have also risen above the levels projected in the central bank’s August economic outlook.
Combined with strong domestic demand and nominal wage growth exceeding 6%, these developments suggest that the bank may revise its 2027 inflation forecast upwards. Seidler expects the central bank’s next macroeconomic outlook, due in November, to show weaker economic growth, particularly for the current year, although growth is expected to accelerate in 2027.
