The Czech National Bank (CNB) held interest rates steady as expected on Thursday and said it was keeping options open as it monitors the economic fallout from the conflict in the Middle East.
Since the United States and Israel launched strikes on Iran on February 28, oil prices have jumped above $100 a barrel, raising global risks of higher inflation and an economic hit.
Czech central bank policymakers voted unanimously to keep the main rate steady at 3.50% on Thursday, in line with forecasts from all 17 analysts in a Reuters poll last week.
The poll's median forecast saw interest rates remaining on hold for the rest of the year, although money markets have priced in chances of a hike. Governor Ales Michl said after the decision that the conditions for fighting inflation are now better than during the previous energy and inflation shock following Russia's invasion of Ukraine in 2022, as policy is now tighter and rates are higher than inflation.
He added that inflation expectations remain anchored, and it was important to keep them low.
"We are acting restrictively in the economy," he said. "On the other hand, we are monitoring the situation, we are keeping all options open."
The Czech crown was a touch weaker after the bank's decision but largely steady on the day, at 24.49 to the euro, and around its lowest levels since September after this month's declines.
INFLATION STILL SEEN STAYING LOW
The central bank had discussed a possible rate cut at its last meeting in February, before the Iran war. It last cut rates in May 2025 as part of a 350-basis-point easing cycle.
Inflation in the Czech Republic has fallen below the bank's 2% target, hitting a headline rate of 1.4% year-on-year in February with help from a government measure to ease energy bills. That provides a cushion to potential shock from higher oil prices, and Michl said inflation should stay below 2% this year, according to updated forecasts partly incorporating higher oil prices, even though core inflation should remain elevated in the quarters ahead.
The central bank will be looking at the secondary impacts of a higher oil price to see if it soaks through to other segments.
