Czech National Bank raises interest rates for the first time since 2022, increasing the two-week repo rate to 3.75%

(1) The Czech National Bank raised the two-week repo rate to 3.75% in June 2026, marking the first rate hike since 2022, signaling a need for tighter monetary policy. Although the Prime Minister criticized the move for its impact on lending, the rate hike was mainly driven by domestic inflation risks, including increased money supply, the fastest wage growth in three years at 8% in the first quarter, a widening fiscal deficit, and the effects of the Iran conflict. (2) While the overall inflation rate fell from 2.5% in April to 2.1% in May, approaching the upper end of the central bank’s target range of around 2%, core inflation remains high, staying near 2.9%. Meanwhile, economic growth is expected to slow, with economic activity forecasted to grow by 2.2% this quarter, down from 2.7% in the previous quarter. (3) In addition, the rate hike may increase demand for the koruna; if the central bank signals a need for further tightening to curb inflation, the koruna could strengthen further.