Czech inflation unexpectedly slowed to 1.4% in February, the lowest rate since 2016, according to flash data from the statistics office. The reading fell below the 1.6% median estimate in a Bloomberg survey and the central bank's projection for the month. This cooling inflation had been expected to give the central bank room for further rate cuts.

However, the Iran war has complicated the outlook. Soaring global energy prices and weakening eastern European currencies after US-Israeli attacks on Iran have raised concerns about inflation. The central bank has kept its key rate at 3.5% since May, and Deputy Governor Jan Frait suggested global developments may limit further rate-cut options.

Traders have already reversed their bets on a rate cut this year, with derivatives pricing now indicating some investors are positioning for a rate hike within 12 months. The central bank has emphasized that any monetary easing would require signs of easing core inflation, while policymakers have said they'll disregard the one-time effect of government electricity bill reductions in their rate decisions.