In brief

• The Czech National Bank raised its base interest rate by 0.25 percentage points, to 4 percent.
• The decision was taken by four votes to three and is meant to limit the pass-through of rising energy and fuel prices to prices of goods and services.
• Banks partly anticipated the decision by raising mortgage rates; the average mortgage rate already exceeds 5 percent.

Decision and its rationale

The board of the Czech National Bank (CNB) increased the base interest rate by 0.25 percentage points, to 4 percent. (ČNB kvůli inflaci zvedla úroky. Černý scénář jsou hypotéky nad šesti procenty – Deník.cz) (ČNB zvedla základní sazbu na čtyři procenta – Novinky.cz) The decision was made on Thursday, and bank spokesperson Jakub Holas announced it on the day of the meeting. The market and most economists had expected such a move. (Hypotéky mohou zdražit, spoření vynášet víc. ČNB zvýšila sazby – Seznam Zprávy) The board's decision was taken by a narrow majority: four votes to three.

The reason is accelerating inflation, driven mainly by expensive energy and fuel and by strong domestic demand. The bank wants to prevent higher costs from being passed on to the prices of finished products and services.

Interest rates and forecasts

Earlier this year the CNB kept the rate at 3.5 percent, raised it to 3.75 percent in June, and left it unchanged in August and September. The current increase is therefore the second this year.

At the same time, the bank lowered its GDP growth forecast for 2026 to 1.7 percent, from 2.2 percent in August. For 2027 it expects growth of 2.5 percent instead of 2.7 percent. It forecasts average inflation for this year at 2.1 percent, up from 2 percent previously, and for next year at 3.2 percent, which is 0.7 percentage points higher than in the previous forecast.

What it means for borrowers and savers

A higher base rate typically raises the interest on loans, including new mortgages, while savings may earn more. Some banks have already passed the announced changes into their mortgage offers. The average interest rate on new mortgages already exceeds 5 percent. Monthly payments may rise, because changes visible in banks' offers anticipated the CNB's decision itself.

When a central bank tightens monetary policy, it usually slows economic growth, which is reflected in the revised forecasts.