The Czech National Bank's Bank Board voted to lower the two-week repo rate by 25 basis points to 3.50% at its May 2025 meeting, with the cut taking effect on 9 May. The Bank Board also lowered the discount rate to 2.50% and the Lombard rate to 4.50%, maintaining the customary 100-basis-point corridor on either side of the repo rate. Alongside the cut, the CNB said its new forecast was consistent with a decline in interest rates in the second quarter of 2025, but stressed that the cut was more moderate than the forecast implied and that stronger domestic inflation pressures were limiting room for further reductions.
The Czech National Bank has been engaged in a gradual easing cycle over the past year, unwinding a portion of the rate increases delivered between 2021 and 2022 when inflation in the Czech Republic reached multi-decade highs.
INFLATION RISKS
By emphasising domestic inflation risks such as services inflation, wage growth and rising property prices, the Bank Board signalled limited room for further cuts, even though its baseline forecast implied rates approaching the long-run neutral level of 3%.
Czech inflation, which reached double-digit levels in 2022, has since moderated. The CNB's tightening cycle took the repo rate to a peak of 7.00%. The current level of 3.50% remains above the CNB's estimate of a long-run neutral rate of 3%; the CNB has been cutting rates since December 2023.
The 100-basis-point corridor — with the discount rate one percentage point below the repo rate and the Lombard rate one percentage point above — defines the band within which overnight interbank rates are expected to trade. The discount rate of 2.50% sets a floor for short-term money market rates, while the Lombard rate of 4.50% acts as a ceiling through which the CNB provides overnight lending to commercial banks.