PRAGUE: The Czech central bank needs to maintain a tight monetary stance to keep inflation under control but is leaving all options open for interest rate decisions this year, according to governor Ales Michl.
Policymakers in Prague held the benchmark rate at 3.5% for a fifth meeting in December.
Among the key inflation risks they cited were a potential acceleration of lending to households and the government, rapid wage hikes, persistent increases in the cost of services, and rising housing prices.
While economic growth exceeded expectations in the third quarter of 2025, expansion in the past two years has been largely driven by household and government spending, Michl said in an interview on CNN Prima News.
“If growth is driven only by consumption, by our spending, then it’s not very healthy growth,” he said.
Robust domestic demand is a major reason for a cautious monetary approach, and that’s why the central bank will seek to preserve positive real interest rates, according to the governor.
“We will strive to keep rates above inflation, but we’ll be debating how much that will be,” Michl said.
“We are leaving all options open. So, rates can either go slightly lower this year, or they will be stable, or if inflation risks appear, we won’t hesitate to raise them.”
Finance Minister Alena Schillerova, who took office in December as part of the new government, said last Sunday that the budget deficit for 2025 was significantly bigger than in the previous year, and that it also exceeded the approved limit by a wide margin.
Michl said the central bank is focusing on fiscal developments over the longer term, since a potential failure to trim the budget gap by the end of the government’s four-year term would represent the “biggest inflation risk”. — Bloomberg
