Czech National Bank Deputy Governor Eva Zamrazilova stated that the monetary policy must stay restrictive for a longer time to control inflation risks. Right now, the policy is set at a somewhat restrictive rate of 3.5%. This benchmark rate has remained at 3.5% for the last two meetings, after starting to ease in late 2023.

Key Indicators

Policymakers are keeping an eye on several key indicators. These include rising housing prices, ongoing inflation in the service sector, and increased wage growth, which could lead to higher consumer demand. Zamrazilova emphasized the importance of maintaining the current policy to achieve inflation targets. Even though a stronger koruna is lowering import costs and reducing energy prices is helping, these factors might not last. Plans are in place for the Czechs to switch to the euro. This information comes from a Bloomberg report. The Czech central bank’s decision to keep the policy restrictive should help stabilize the koruna. This makes strategies like buying call options on the CZK or put options on the EUR/CZK pair appealing in the coming weeks. With the European Central Bank’s policy rate staying at 2.5%, the interest rate difference continues to favor the koruna.

Market Implications

This strong stance suggests that the market might be too hopeful about when rates will be cut. Traders should consider positions that benefit from sustained higher rates, like paying the fixed rate on short-term Czech interest rate swaps. This strategy takes advantage of the central bank maintaining its 3.5% benchmark rate until the end of 2025. It’s important to recall the aggressive rate hikes in 2021 and 2022, when rates peaked at 7.00%. This context makes today’s 3.5% rate seem only moderately restrictive. The latest data from August 2025 shows consumer prices at 2.8%, still above the central bank’s 2% target. This indicates the bank has little reason to cut rates anytime soon. For equity derivative traders, this outlook poses challenges for the local stock market. Extended tight credit conditions may hurt corporate earnings and economic growth, suggesting caution regarding the Prague Stock Exchange (PX) Index. We see value in buying protective put options on the PX index as a safeguard against potential downturns. Create your live VT Markets account and start trading now.

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