Czech PM attacks central bank rate hike

The Czech National Bank has raised its key interest rate by a quarter of a percentage point to 4% in a narrow decision by the bank board. Four of the seven board members backed the move, which Governor Ales Michl framed as a step to prevent higher energy and other cost pressures from triggering broader price increases. The central bank aims to anchor inflation expectations and limit pro‑inflationary risks by tightening monetary policy. The change in the basic rate is expected to flow through to borrowing costs across the economy.

Governor Michl explained that the decision reflected concerns over persistent core inflation, rapid wage growth and the risk of faster money growth driven by expanding credit. He said the move was not a reaction to short‑term fluctuations in oil prices over the previous weeks, but part of a broader effort to contain inflation expectations. Michl indicated that the bank board will carefully assess the impact of this step and is keeping all options open for its next meetings.

Prime Minister Andrej Babis has intensified his criticism of the central bank’s decision, describing the rate hike to 4% as "absolutely scandalous." In a video message shared on social media, he argued that the measure will benefit commercial banks while increasing costs for households and companies. Babis warned that the result would be more expensive mortgages for individuals, higher loan costs for businesses and a general rise in prices. He said he fundamentally rejects this approach to monetary policy.

Babis claimed that the main beneficiaries of the higher rate are commercial banks, which he said would earn more, while borrowers face rising monthly payments. He linked the decision directly to expectations of more expensive mortgages and credit, stating that mortgages "will get more expensive again" for citizens. The prime minister’s comments underscore the political sensitivity of borrowing costs and the distributional effects of tighter monetary policy.

In his criticism, Babis emphasized an international comparison to question the logic of the central bank’s stance. He said Czech inflation was 2.2%, the third-lowest in the European Union. He contrasted this with the euro area, where he noted that inflation is higher while the main policy rate of the European Central Bank is lower than the Czech basic rate. Babis argued that a situation in which the domestic policy rate exceeds average annual inflation is, in his words, "absolutely against the logic of reason."

Michl, by contrast, has stressed the need to address underlying inflation dynamics rather than focusing only on current headline figures. He highlighted the persistence of core inflation, strong wage growth and the potential acceleration of money supply growth through rising credit as key risk factors. The split vote on the bank board shows that views differ even within the central bank about the timing and scale of tightening. Nonetheless, the approved increase to 4% marks a clear signal that price‑stability concerns currently outweigh the risk of higher borrowing costs in the central bank’s assessment.