Transcript of the questions and answers from the press conference

You said that the forecast implies a further reduction in rates in the second quarter, so I want to make sure if today’s rate cut has already fulfilled the forecast or whether we are talking about a further reduction. And a more general question: you said that the government is currently providing a massive fiscal stimulus to the economy, so the question is why, in this situation, was such a radical rate cut needed, rather than maybe just 50 basis points or less? Could you please explain the reasons for this larger reduction than most people had expected? Are you worried by the fact that you are already close to zero and are thereby losing your traditional monetary policy ammunition? And what are your thoughts on potential further steps?

As regards the first question: yes, today’s decision fulfilled the assumptions of the forecast, or rather slightly exceeded them, as the forecast had assumed a rate cut of 50 basis points at today’s meeting. So, in this respect, yes, it was fulfilled.

Turning to the decision, we are of course glad that fiscal policy is bearing its share of responsibility – at this moment the lion’s share – for acting countercyclically on the economy and for keeping the economy running, especially with regard to maintaining the flow of liquidity for households and firms and so on. I think that is perfectly alright. We are trying to do our part of the job, i.e. to ease the monetary conditions as much as possible, because we are basically reacting to the forecast, which shows that the decline of the economy will be unprecedented. It shows that strong disinflationary tendencies will start to manifest themselves very quickly and could even turn into deflation – not this year, but perhaps during the second part of next year at the earliest – if the scenarios were to shift towards the more pessimistic variants in the subsequent period. We therefore see it as the reaction of monetary policy to these expected developments. We believe that if we are sure about the direction of these developments, we should use the room we have as much as possible.

Of course, the debate was difficult and long, with various accents made in the arguments. Some stressed this very proactive approach, while others were more in favour of maintaining some room and a more gradual approach to easing the monetary policy conditions. However, the final result and the ratio of the votes cast of 5:2 was in favour of a rather more forceful step today than had been expected.

With regard to us nearing zero, yes, we are nearing zero, but that was probably expected and it doesn’t mean that if we get to zero we can no longer do anything. We do of course have some other instruments and ways of influencing the situation, but I don’t want to anticipate that, because we can’t see far enough past the horizon now. We’ll see how the situation evolves. The stabilisation following the easing of the pandemic measures may perhaps follow relatively quickly. We are not in a situation where we can see any dramatic situation as regards, say, inflation very close, at the horizon. So, I think we won’t be under any extreme pressure there. Today we created a bit of a lead by putting to one side a little not only current inflation – of course, we can no longer affect that today anyway, as it’s a thing of the past – but also inflation, say, one year ahead, which will still be appreciably positive, albeit very close to our target or even slightly below it. So, we are discussing a range of additional instruments. We’ll see to what extent the situation will require us to apply them. Today I can say that these very low rates are very likely to stay with us for a long time, at least until the economy visibly and reliably recovers from this situation, and that includes future inflation.

A question about the koruna exchange rate. You expect a larger depreciation of the koruna. Does the statement of previous months still hold true that you have a threshold at which you would enter the market, or has the forecast changed the situation in any way?

In principle, it still holds true that we have an internal threshold which we would regard as an unsound degree of depreciation of the koruna. However, the forecast now expects the exchange rate to remain more or less stable close to its current levels. But in general it holds true in our monetary regime that we are ready to take action at any time if we see any extraordinary volatility.

You made a larger move today than had been expected, 75 basis points. The buffer you have left, what is your vision of how to deal with it? Given how the situation is unfolding and how the macroeconomic forecast has deteriorated, what is the purpose of the 25 basis point buffer?

We don’t treat the buffer as a physical commodity. The buffer is there simply as a residual of the interest rate level we had before starting the process of lowering rates. We’ll see. We can’t rule out that, if the situation is prolonged and our outlooks in the months ahead show a need to further ease the monetary conditions, it will naturally be the first candidate. Theoretically, our rates can also go into negative territory, so that cannot be completely ruled out either, although I think we are still very far from that, both from the perspective of the real economy and in terms of there being a need to do such a thing. So, the buffer isn’t a buffer, it’s the positive interest rate residual that is left after today’s decision.