Transcript of the questions and answers from the press conference

I wanted to ask whether the Bank Board agrees – or to what extent it agrees – with the new forecast, in contrast to the previous meetings, when you disagreed with it. More specifically, I am interested in two things in the forecast. First, it implies that the pace of interest rate cuts should in fact slow to around 25 basis points already at the next meeting. The second thing that this implies is that the repo rate should be around 4% at the end of this year and around 3% at the end of next year. Can you say anything about this, about the Bank Board’s view of this?

We still see slightly inflationary risks relative to the forecast, so the interest rate path is still rather higher. But we are closer to the forecast than in January.

As regards accurate data, we will now assess the data at every meeting and decide. So, we cannot say anything more precise or more detailed about our future steps, but simply tell the public and markets that we may simply stop, end or slow the process of cutting rates at any time.

I would like to ask about the debate on the neutral interest rate. Although the expected interest rate path has increased significantly today, this will probably affect the terminal rate perhaps sometime in the longer term. You said that part of the Bank Board considers it to be a little higher. I would like to ask whether you will continue the debate about this or whether you came to any conclusion about this today, and also whether the view that it is slightly above – and, if so, how high above – 3% is the majority Bank Board view.

The interest rate path has increased in the forecast, not in our communications, which remain consistently the same. We pointed out that we saw interest rates far higher than our forecast in January, and the developments so far have confirmed this view of the Bank Board.

As for a more detailed discussion about the neutral rate, if we define it in such a way that it is the equilibrium, short-term interest rate at which the economy is in equilibrium and inflation at the target, I don’t expect any major further debate.

In the model, the rate will be 1% in real terms and 3% in nominal terms. I think this is the majority view – and you have asked about this very precisely, as it was not written in the statement that this is the majority view – that we see it slightly higher, mainly because of higher public finance deficits. If the economy has long-running deficits of 200 billion or more, then new money is activated in the economy. That causes a greater need for tighter monetary policy, or a higher neutral interest rate in the theoretical concept.

Thank you. I’m very sorry, I didn’t quite catch what you said – does a majority of the board see it higher, or not see it higher, than 3%?

Most of the Bank Board members see it higher, but the difference is a few tenths of a per cent. So, if the short-term interest rate in the model is 3% in nominal terms, we debated somewhere around 3.5%.

However, the nominal rate – the debate about the exact rate in per cent – is not the key thing. Our message is that for a long time, the last ten years, the neutral rate was not respected at all. Rates were significantly lower than the neutral interest rate. Real rates were negative. So, we want to be above this rate at present. We want to maintain tight policy to avoid a return to inflation. We want to remain hawkish.

Were any arguments voiced – either by the Bank Board or by the Monetary Department – in today’s debate for slowing the process now? Was there any discussion of the possibility of cutting rates by just 25 basis points, especially given that an acceleration was considered at previous meetings? Can you say anything about that?

I think the debate was entirely clear this time. An overall consensus. The two board members who previously voted for a larger reduction may justify something in their own interviews. We agreed that we would assess the new data at each subsequent meeting and we didn’t predict or mention any future expected rate path at all.