Transcript of the introductory statement from the press conference

4th February 2010

GOVERNOR

Thank you. Good afternoon.

As you already know, the Bank Board today decided unanimously, i.e. with the votes of all six members present, to leave our 2W repo rate unchanged at 1%.

If I were to summarise the whole meeting in one sentence, I could say that our view of the economy hasn’t changed and there have been no dramatic changes in terms of domestic and external developments. Both headline inflation and monetary-policy relevant inflation at the monetary policy horizon remain close to the inflation target of 2%. We’ll get back to this later in more detail.

As for the evolution of, and outlook for, interest rates, we expect – at least according to what the forecast shows us – that they should remain close to the current level in the first half of this year and later we expect them to increase gradually. At this juncture, we have not identified any significant risks in either direction.

When I said that inflation would remain near the target, there is a difference between monetary-policy relevant inflation, that is, inflation adjusted for the effect of tax changes. If we look at headline inflation, that is, including the effects of tax changes, we should get slightly over 2%, that is above our target of 2%. By contrast, monetary-policy relevant inflation – adjusted for the effects of tax changes – will approach the target from below.

As for GDP growth, what we said in the previous forecast is valid. That means we still expect an asymmetrical W, with an increase in GDP followed by a slight slowdown in growth. More robust growth should not occur until 2011. As for the exchange rate of the koruna, I repeat again – and later I will show you the expected path generated by our model – I repeat again that this is not a commitment which we would want to aim at. However, what our model and the forecast indicate is an assumption of very gradual appreciation of the exchange rate over the next two years.

Looking at the assumptions of the current and previous forecast, as I said at the beginning there were no dramatic changes either in consumer prices or in producer prices. For producer prices we assume that a stronger increase could perhaps occur in 2011. As for GDP growth, the changes are really minimal. We are slightly more optimistic than last time. And as for the 3M EURIBOR, by contrast, a slightly lower interest rate path is expected.

For the other external factors, such as oil, the developments are slightly inflationary, so we expect the price of oil to be slightly higher, or as you know, we take this from Consensus Forecasts. As for the dollar-euro exchange rate, the difference is really minimal.

Now back to the forecast in a bit more detail. Here you can see headline inflation. As I said there will be an increase above our inflation target of 2% and after that we should be really close to the inflation target. For monetary-policy relevant inflation, as I said, we should approach the target from below at the monetary policy horizon, and at the end of the monetary policy horizon monetary-policy relevant inflation and headline inflation should converge.

For the GDP forecast, here you can see a slightly asymmetrical W, that means in the first half of this year an increase in GDP, which could reach 2% year on year, after that again a moderation and more robust growth in 2011.

Interest rates, again basically just a graphical representation of what I said, a gradual rise that should start roughly in the second half of this year. And as I said, very gradual appreciation of the exchange rate.

The forecast – maybe I will go straight to the comparison with the previous forecast. So, you can see that the differences aren’t big, that the story we gave in the previous forecast really is very similar. I’m trying in vain to think how I might comment on the changes – maybe a bit more optimistic in terms of GDP growth last year and this year, but the changes are really so marginal that they aren’t worth any special comments.

So, overall the meeting today was not complicated, given that there were no big changes compared to the situation at at least the previous two Bank Board meetings on monetary policy issues, so a number of things had already been discussed. We identified no new asymmetric risks. What we gave some attention to was the evolution of nominal wages, where on the one hand there are arguments that the high, or higher, wage growth than we expected in the forecast at the end of last year could have an inflationary effect. On the other hand there are relevant arguments that it is connected with labour market restructuring. Likewise, another argument that could act in the inflationary direction is that the very narrow margins of producers could gradually return to the original level, which could have inflationary effects. On the other hand, there is the argument that there are free capacities, so as soon as a recovery occurs it will be possible to raise production without generating inflationary effects. So I repeat, the risks we discussed are not asymmetric.

Perhaps one more note: we also touched upon fiscal developments. It was said today that they are currently very hard to predict. We discussed the structural and cyclical components of the deficit. The share of the structural component is rising, in other words this requires more fundamental changes to be made in the structure of the expenditure side, but of course also some measures on the revenue side of the budget. But this wasn’t something we paid special attention to today.

That is all by way of introduction. Thank you.