Transcript of the questions and answers from the press conference

Could you please give us the arguments for and against increasing rates? Also, what was the discussion like? How complicated was it?

The discussion was complicated and long. That’s also why we had to postpone this press conference. I must say the decision was difficult, because we are still, objectively speaking, in a dilemma. The dilemma is due, on the one hand, to inflation pressures in the domestic economy, which are stronger than expected, stronger than we originally expected in last autumn. These pressures are manifesting themselves repeatedly in the latest data on inflation and, in turn, are affecting – as an input parameter – the results of the new forecast for the period ahead. That’s one thing speaking in favour of tightening the monetary conditions, or raising rates if you wish.

On the other hand, there are clear signals of a moderation of growth in the economy, especially its export component. That means above all in industry. Industry is in fact in a shallow recession. A very shallow one for now, but a recession – slight downturn – nonetheless. The expected recovery gradually predicted for foreign markets is materialising with a lag. Its onset is being postponed. Various uncertainties are appearing as to the nature of the recovery, especially in the euro area. This is complemented by a new global uncertainty connected with the infection in China.

So the debate was difficult, because we had to look at both sides of the coin. And the result is very close. The arguments stressing the domestic aspect prevailed by only a small margin. This aspect involves very strong domestic inflation pressures clearly stemming from a strongly overheated labour market for many years and a comfortable fiscal situation enabling strong support of consumption spending by public expenditure, be it via wages in the public sector or via social transfers such as pensions, parental allowance etc.

Those who used the domestic arena as the main argument pointed out firmly that even at the monetary policy horizon, our latest forecast shows we could still be significantly above our target, albeit within the tolerance band, but still at the upper boundary of the tolerance band. This is a relatively uncomfortable situation for us, as there is always a risk of overshooting the estimate in real life. We are primarily responsible, by law, for price stability in this country. Interest rates are the main instrument we have at our disposal today. That’s why increasing our rates slightly by 25 basis points now was the view that narrowly prevailed in the end.

I would like to follow up on what you just said. Could you please give us more details on the market interest rate forecast? Has the initial rise in market rates been fulfilled completely with today’s move, or does the forecast in its model system assume any other increases? That’s probably important for whether we are to expect a decrease in rates in the second half of the year or whether there is still room for some smoothing. Could you please quantify this a bit?

I don’t know to what extent I can quantify it accurately. What the forecast assumes is a rise in rates at the start of the year. That took place with today’s decision. The forecast doesn’t assume any additional rate increases. The question of a subsequent decrease in the second half of this year is a question I would leave open. I think that will depend very much on what new data come in from the domestic and foreign economy. We always naturally tend towards some smoothing of the path indicated by the forecast. The forecast has some built-in elements that should lead to smoothing, but they are not and cannot be absolute.

So, the important thing is that the rise we signalled in the past as one that was likely to take place and we saw room for – that rise took place today. Going forward, the question of whether there will be rate stability, or whether the situation will be favourable enough for us to consider a decrease, is open. That is completely open now.

You have suggested it will be stability or a decrease, but you don’t see a further increase as very likely.

That’s what it looks like at the moment, and the forecast also assumes that. We don’t expect inflation pressures to escalate further in such a way that we would have to react with a further hike. But, as I said, today’s decision is clear and future developments are open.

What role did the property market situation, i.e. growth in property prices, play in your decision?

I would say that it played no direct role. Indirectly, of course, high property prices and, in turn, high rents and some other housing-related costs are reflected in domestic inflation pressures. So, in this sense, the situation contributed to the fact that we saw room and a need for raising interest rates. But apart from that, there was certainly no direct primary link.