The governor of the Czech National Bank (CNB), Aleš Michl, has cautioned against prematurely joining the Eurozone and resisted calls to lower interest rates amid diverging views among the country’s leadership on economic policy. His remarks come amid a deepening power struggle between Prime Minister Andrej Babiš and President Petr Pavel over the direction of the Czech economy.

Michl criticized Babiš’s push for lower interest rates, warning that easing monetary policy at this stage could undermine efforts to control inflation. Babiš, a billionaire businessman and frequent admirer of former US President Donald Trump's approach to economic management, has advocated for cheaper credit, a stance Michl said conflicts with the CNB’s objective of maintaining price stability. “Yielding to such pressure would jeopardize price stability,” Michl said in an interview.

At the same time, Michl expressed reservations about President Pavel’s campaign to adopt the euro, arguing that the Czech economy had not yet converged sufficiently with other Eurozone members to make the transition advisable. While acknowledging the country’s progress since joining the European Union in 2004, Michl warned that an early move to the single currency might spur inflation by increasing wages and other costs.

Michl described the situation as a “battle of mistimed ideas” between the prime minister and president, emphasizing the need for the CNB to remain independent of political influences in setting monetary policy.

The differing economic philosophies of Babiš and Pavel reflect broader political divisions. Pavel, who defeated Babiš in the 2023 presidential election, supports closer integration with the Eurozone, arguing that Czech export-driven businesses are deeply tied to the currency bloc and that the country would benefit from having a say in Eurozone monetary policy decisions. “It is clearly better to be at the table where decisions are made than to sit outside the door and then have to deal with those decisions afterwards,” Pavel said at a conference in June.

Babiš, who returned to power in December after his ANO party won parliamentary elections, remains opposed to adopting the euro, stressing the importance of maintaining national control over monetary policy and exchange rates. All European Union member states are obligated to join the Eurozone eventually, except Denmark which has an opt-out, but there is currently no mandated timeline. Bulgaria joined the Eurozone in January, and Hungary has set a target date of 2030 for euro adoption.

Michl, who previously served as an economic adviser to Babiš during his tenure as finance minister, admitted it was “an irony” to find himself at odds with the prime minister over monetary policy. The CNB recently raised its benchmark interest rate for the first time in four years, increasing it by 0.25 percentage points to 3.75 percent in response to ongoing inflationary pressures, particularly elevated core inflation excluding volatile energy and food prices.

While Pavel has publicly defended the CNB’s independence, he has not directly countered Babiš’s calls for rate cuts. Michl suggested that the president’s euro advocacy has so far generated “no constructive debate, only political noise,” underscoring the contentious economic discourse between the nation’s top leaders.

Despite regional moves toward euro adoption, Michl maintained that the Czech Republic should not feel pressured to abandon flexible exchange rates prematurely. He highlighted the koruna’s ability to appreciate as a valuable tool in combating inflation, signaling continued cautiousness on the path toward deeper monetary integration within the EU.