Transcript of the introductory statement from the press conference

23 September 2010

GOVERNOR

I don’t know if I should keep you in suspense. Probably not. Marek would certainly be annoyed with me. So, after the discussion, as you certainly know, we decided to leave the interest rate unchanged. What may be more interesting to you is that this decision was adopted by a majority of six Bank Board members. One member voted for an increase in rates.

So, that gives you the new information. Now for the reasons. In principle, it still seems that inflation should be basically close to the target at the monetary policy horizon. The risks we saw for the forecast, which I will of course come back to later, we regard as balanced. I must say that a large majority of the Bank Board members regard them as balanced. Some members of the Bank Board perhaps said, or did say, that the upside risks to inflation maybe slightly predominate owing the continuing recovery of the economy in the Czech Republic and in Europe. I will come back to those things.

So, as I said, as regards inflation, it is now slightly below the level of the forecast, owing to slower growth in food prices, regulated prices and adjusted inflation. However, this does not mean – and it is after all also visible from this image which you know – it does not mean any significant shift. At this moment we can say that the forecast as a whole is broadly materialising.

As for the assumptions, the most remarkable thing about consumer prices is that they are basically not shifting. For producer prices something like inflation pressures can be seen. And as regards GDP, we again basically cannot speak of any dramatic – big dramatic – events. Perhaps it is only worth mentioning that Consensus Forecasts assesses this year, or expects this year, to be slightly more favourable – for the euro area, of course.

With regard to the other assumptions, perhaps we can say that of course commodities including oil are rising, but for us as a country with strong ties to the euro this is being offset by a weaker dollar, so the effects all broadly cancel out, as it were.

Economic growth, as I said, was faster in the Czech Republic as well. The deviation is due to the willingness of my fellow citizens to spend a little more than it seems, at least according to the latest figures. It also seems that the labour market is recovering slightly faster than we expected. On the other hand, industrial producers, after some slightly faster growth the latest figures now show that they are reducing the growth, and agricultural producer prices are coming into line with the forecast. Just as a reminder, this is a very volatile indicator, so we are in fact a little surprised that they are in line with the forecast and getting into positive figures. Taken together, it may be worth saying that even the slight surprise regarding consumption and growth is largely offset by the fact that overall, by contrast, the price pressures are slightly below the forecast rather than above it. So, taken together we cannot draw any great conclusions from this. If we look at the developments, this only sums up what I said now, things are better, or slightly better, especially in the real economy.

This brings us to what the risks are. As I said, most of the Bank Board members assess them as balanced. The main anti-inflationary risks are represented primarily by the fiscal consolidation. Here I can say that there were observations which fell on relatively fertile ground that the mix of policies may start to differ from what we are expecting, in that the fiscal part will be tighter, as maybe will – in a way – the part of various regulatory measures and capital adequacy increases, although of course the banks or the financial sector everywhere in the advanced world has enough time to adapt. Nevertheless, it is simply a more restrictive effect in the long run than we expected, which, of course, will probably enable us to make our policy somewhat easier in the future than we expected, although it will not have any big effect on this forecast.

And of course the other slight anti-inflationary risk is the koruna’s exchange rate. By contrast, on the inflationary side we are getting new reports about the evolution of the real economy, the labour market, where unemployment is somewhat lower than we expected. That implies that the future evolution of domestic inflation may start to provide some impulses, which, again, we are not overestimating. It is not… none of these risks currently seems very dramatic to us, to put it differently. We base this on the fact that at the moment the developments are very much in line with what we expected.