The Czech National Bank sends mixed signals: energy at a crossroads, interest rates could rise or fall.

(1) The latest economic forecast from the Czech central bank includes alternative scenarios for energy prices being higher or lower than the baseline outlook, and points out that the corresponding interest rate paths will also rise or fall accordingly. In particular, the scenario of higher energy prices means that by the end of 2026, the PRIBOR interest rate will be around 4.5%, while lower energy prices will lead to a slight decrease in the interest rate by the end of 2026.(2) Additionally, the Czech central bank has simulated an economic downturn scenario, under which the PRIBOR interest rate will drop below 3% in 2027. At the same time, the central bank has also prepared a scenario of a larger shock where the closure of the Strait of Hormuz leads to a rise in energy prices, resulting in a larger decline in the three-month interbank interest rate.(3) Czech central bank Vice Governor Zamrazilova stated that, thanks to inflation remaining at the target level over the long term, the current situation is relatively comfortable, with real interest rates in positive territory.