The Vault at Na Prikope 28
Money is moving fast in Prague. On this Friday, November 28, 2025, the Czech National Bank (CNB) stands as a lonely sentinel in Central Europe. While the European Central Bank grapples with stagnant growth in the Eurozone core, the Czechs are playing a different game. The 2-week repo rate now sits at 3.50 percent. This follows the November 7 board meeting where Governor Ales Michl emphasized a hawkish stance despite cooling inflation. The ghost of 2023’s double-digit price hikes still haunts the wood-paneled halls of the central bank. They are not ready to let their guard down yet.
The koruna is the primary weapon. Trading at approximately 25.15 against the Euro, the currency has shown remarkable grit. This strength is not accidental. It is a calculated result of high real interest rates that attract carry traders. But this strength is a double-edged sword for the export-heavy industrial heartlands of Bohemia and Moravia. Every cent the koruna gains makes a Skoda Superb more expensive in Berlin or Paris. The risk is clear. The reward is a stabilized price level that finally dipped to 2.3 percent in the October CPI report, as noted in recent Reuters currency analysis.
Manufacturing at the Breaking Point
The industrial engine is sputtering. For decades, the Czech Republic was the workbench of Europe. Now, that workbench is expensive. Energy costs have plateaued but remain significantly higher than pre-2022 levels. The manufacturing PMI (Purchasing Managers’ Index) has hovered dangerously close to the 48.0 mark throughout the third quarter of 2025. Anything below 50 signals contraction. Industrialists are shouting for relief, yet the CNB remains focused on its 2 percent inflation target. They refuse to sacrifice long-term price stability for a short-term manufacturing boost.
Skoda Auto remains the bellwether. The transition to electric vehicles is no longer a future concept; it is a survival requirement. With the launch of the Elroq and the ramping up of Enyaq production, the Mlada Boleslav plant is a hive of high-stakes engineering. However, the reliance on German consumer demand is a vulnerability. As Germany’s industrial output remains sluggish, the Czech supply chain feels every tremor. Investors are watching the quarterly earnings closely to see if the 2.1 percent GDP growth projected for the end of 2025 can actually be sustained without a more aggressive rate-cutting cycle.
Visualizing the Interest Rate Descent
The following chart illustrates the aggressive trajectory of the CNB 2-week repo rate from the start of 2024 through the current levels of late November 2025. This visual representation highlights the cautious easing cycle that has defined the last twenty-two months.
The Labor Paradox
Unemployment is a ghost story in Prague. At 2.8 percent, it is the lowest in the European Union. On paper, this looks like a victory. In reality, it is a bottleneck. Companies cannot find skilled labor. This shortage is driving wage growth, which reached 7.4 percent in nominal terms this year. While workers have more korunas in their pockets, the central bank sees this as a pro-inflationary risk. If wages outpace productivity, the 2 percent inflation target becomes a fantasy. This tension is the core of the current economic narrative: a battle between a tight labor market and a restrictive monetary policy.
Foreign direct investment (FDI) is pivoting. The days of low-cost assembly lines are over. The new wave of investment is flowing into R&D centers and high-tech manufacturing, particularly in the semiconductor and renewable energy sectors. The government’s push for digitalization, backed by strategic CNB policy oversight, aims to move the country up the value chain. This shift is essential to offset the rising cost of labor and the strength of the currency.
Key Economic Indicators November 2025
| Indicator | Current Value (Nov 2025) | Trend |
|---|---|---|
| Annual Inflation (CPI) | 2.3% | Stabilizing |
| CNB 2-Week Repo Rate | 3.50% | Hawkish Hold |
| GDP Growth (Q3 YoY) | 2.1% | Moderate Recovery |
| CZK/EUR Exchange Rate | 25.15 | Strong |
| Unemployment Rate | 2.8% | Critical Shortage |
The road ahead is paved with data releases. Investors are currently parsing the latest European currency fluctuations to see if the koruna will break the 25.00 barrier. If it does, expect the export lobby to increase political pressure on the bank board. The CNB has consistently stated that they do not target the exchange rate specifically, but they cannot ignore its impact on the broader economy. The balance of payments remains healthy, but the margin for error is shrinking as global trade dynamics shift toward regional blocks.
Energy security has transformed from a crisis to a structural cost. The decoupling from Russian gas is complete, yet the reliance on the European energy grid means Czech prices are tied to the volatility of the Dutch TTF futures. For energy-intensive industries like glassmaking and chemicals, this is a permanent handicap. These firms are the most vocal critics of the high interest rate environment, arguing that the cost of capital is preventing the very upgrades needed to improve energy efficiency.
The next major milestone occurs in early January. This is when the “January Effect” hits the Czech economy, specifically the annual re-pricing of services. Historically, this is when inflation figures see their most significant jumps or drops. The CNB will be watching the service sector price lists with predatory focus. If the January 2026 re-pricing data shows a spike above 3 percent, the projected rate cuts for the first half of the new year will be wiped off the table instantly. Watch for the December inflation print, due in mid-January, as the definitive signal for the next phase of the Czech monetary experiment.
