Cnb preview wait and see is the preferred attitude

Key arguments

• The CNB Board assesses broad monetary conditions as mildly restrictive, with the 3.75% base rate above the long-run equilibrium rate in the central bank's forecasting model, supporting a hold on 17 September.
• Inflation is expected to rise from September onwards and stay above the 3% upper bound of the tolerance band for eight months, driven by a low early-2026 comparison base, rebounding food prices, renewed growth in regulated prices, still-elevated fuel prices and persistent core inflation.
• The CNB's summer inflation outlook, especially for next year, looks optimistic and is expected to be revised higher in the autumn forecast, while the GDP forecast is likely to be trimmed given disappointing real GDP so far.
• A planned 11% minimum wage increase and 5-9% public wage growth require caution, although manufacturing wage growth should be restrained by pressured profitability and tight competition, with overall nominal wage growth around 6% next year.
• The government's draft budget showing a 3.5% deficit-to-GDP ratio, above the previously assumed 3%, is only expected to see cosmetic downside adjustments, with limited inflationary impact channelled mostly through wage increases.
• Unchanged rates beyond the September pause remain the base case, with a 35% probability assigned to a one-and-done hike in November, especially if oil prices keep accelerating and the ECB raises rates.
• The koruna has weakened in September on dovish signals and roughly 100bp of tightening priced by the market, with EUR/CZK seen near 24.30 into the meeting and scope for further losses.
• The Czech yield curve, currently among the flattest globally, is expected to steepen, with the front end pricing unlikely to fall below three hikes and the long end under pressure from higher core yields and a larger-than-expected fiscal deficit.

Corresponding source evidence

1. Here, we take the stance that the rebound in industry will support economic growth at around 2%, while household consumption will likely come under some pressure, as rising consumer prices will bite into real purchasing power in the coming quarters.
2. With the escalation and persistence of the Hormuz turmoil, we have revised up our inflation forecast in recent weeks, while risks to economic activity have once again bared their claws.
3. November may bring a fresh view In any case, November is set to become more interesting, as we get a fresh CNB forecast, while potentially receiving punchy numbers for both November’s headline and core inflation.