The Czech National Bank will raise its key rate by 25 basis points to 4.00% on November 5 and signal more hikes, ING said in a ING preview on October 28.

It would be the second increase since the US-Iran conflict pushed up energy prices, after the central bank (CNB) raised the two-week repo rate to 3.75% in June, its first move in 13 months, and held it there in August and September. Inflation accelerated to 2.5% y/y in September from 1.9% in August, still inside the tolerance band around the 2% target, but both headline and core inflation have run above the CNB's own forecasts.

The CNB is the only central bank in Central and Eastern Europe that has already answered the energy shock with higher rates, according to ING, and markets expect it to keep going. More than 100 bp of tightening is priced in, with another hike seen in February and a terminal rate of 5.00% within about 18 months, a path ING describes as significantly more aggressive than even its own hawkish forecast.

CNB two-week repo rate (end-month) and Czech CPI inflation, % y/y, January 2024 to September 2026. Source: BIS, Czech Statistical Office via IntelliNews Lambda

The Bank Board has said little before the meeting. Deputy Governor Jan Frait said "arguments for a rate hike make sense", while noting that no decision had been taken and that there were also reasons to hold. Board member Jakub Seidler said he leaned towards a hike in November. Seidler has consistently voted with the board majority, which gives ING confidence that the move will come.

The decision will be taken alongside a new CNB forecast, and almost every input has moved in a hawkish direction since August. The EURIBOR path derived from forward rates has risen by about 80 bp on average across the forecast horizon, and on current forward prices the CNB's oil-price assumption has to go up by 21% for 2027 and 11% for 2028, and its gas-price assumption by 80% and 60%. The government's draft budget for 2027 adds a 6.8% average rise in public-sector wages and an 11.2% increase in the minimum wage.

In August the CNB projected inflation averaging 2.8% in the first quarter of 2027 before slowing, with no further rate rises built into its path. ING expects 3.9% in that quarter and 3.4% for 2027 as a whole, above both the CNB and the market consensus, driven by a turn in food prices and by higher energy costs feeding into regulated prices at the annual January adjustment. The only dovish element in the new forecast is likely to be weaker growth: second-quarter GDP came in 0.4 percentage points below the CNB's expectations, and ING forecasts growth of 1.8% this year and 2.3% next, against the CNB's 2.2% and 2.7%.

After November, the December and above all the February meetings remain live for further tightening, depending on incoming inflation data and especially the January print, ING said. The bank remains bullish on the koruna, the only CEE currency it favours since turning bearish on the region in September, though after the October rally it sees EUR/CZK as fairly priced at 24.300-24.350.

This article was produced with the help of IntelliNews Lambda analytical tool