Transcript of the questions and answers from the press conference

Given the second wave of the epidemic and the rising numbers, is there a risk that we could start getting close to the adverse scenario?

As I perhaps partly hinted in the statement, such a risk unfortunately exists. If the restrictions were to become more across the board in nature, they would no doubt affect economic activity and the economic life of businesses and households. Even if the measures were not formally across the board, it is clear that some spontaneous restrictions may arise on the part of consumers and to some extent also businesses, which may adopt their own measures to protect the health of their employees.

So, unfortunately yes. We are still hoping, and so far we don’t have reasons to start considering the former alternative scenario – which we have never taken back but haven’t mentioned it since the spring – to be the main scenario. Clearly, if the pandemic situation and the related circumstances approach the spring situation, I’m afraid we will be approaching that scenario a bit.

The same question as my colleague, in fact, but maybe I would just like to ask for clarification. Which of the spring measures are you as the central bank looking at? What would you regard as the signal of a full, across-the-board lockdown like in the spring? And what could potentially trigger further policy easing? Would it be closures of schools, or manufacturing firms? What would be the main thing damaging the economy or the thing that would have to occur in the economy for the alternative scenario to materialise?

My second question: what role does the koruna play in your current view? You said that the koruna is still rather stronger on average in Q3, but it’s moving towards weaker levels. How is that affecting your monetary policy considerations?

As for the first question, even in the spring the scenario didn’t contain any precise criteria for its full implementation, so to speak, because that isn’t really possible. Clearly it was a scenario considering the return of shutdowns in the economy and in life, with all the ensuing negative impacts. We believe that this isn’t on the table now, that the lesson learned in our country and in Europe is really strong, in that the price we would pay for very extensive and very restrictive measures is simply huge and that such measures must be considered in this context. To make it sound less materialistic, the price is not only a decline in a figure such as GDP or employment – there are people’s lives behind these dry figures. If our GDP declines, we won’t have budget revenues, we won’t have enough money for health care to cure other various diseases, for education to fulfil its mission, and so on.

We are therefore convinced that there won’t be an across-the-board closure of our economy or relevant neighbouring economies. However, as I said, the scale of the restrictions may be relatively large, caused either by formal measures and restrictions or, rather, by spontaneous or secondary effects, for example schools having to be closed to a larger extent and thus preventing parents from doing their jobs or doing business to the full extent, and so on. But I think that we are still very far from the critical scenario of an across-the-board lockdown, and I firmly believe it won’t materialise.

With regard to your second question, the koruna is reacting to the current situation in the same way as it reacted in March by depreciating relatively sharply in response to the then new coronavirus-related uncertainty in the Czech Republic and Europe. It’s reacting in the same way today, as the epidemiological figures for the Czech Republic are not looking good. In this respect, it’s in fact a built-in stabiliser automatically fostering an easing, or conversely tightening, of monetary policy. If the koruna depreciates, it eases the monetary conditions. We are seeing that now. At the moment it’s probably logical – not surprising, I would say – and it’s in line with the context of the situation. So, we are taking it into account. It’s creating some room for us. If the negative scenario were to approach, in the sense of a rapid onset of sharp disinflation as well, a weaker koruna would give us room not to react immediately or not to consider such active and rapid deployment of potential unconventional instruments.

However, we’re far from that. Our inflation is still very vital. We do expect it to cool, but not until our transmission horizon, i.e. not for a year or year and a half. So, sometime during next year inflation should already be at normal levels close to our 2% target. These levels clearly don’t require any further monetary policy easing on our part. And the koruna is contributing to that. Maybe, on the other hand, to anticipate additional questions, it still holds true that if the koruna should, for any reason not currently present and not even expected – but as they say, prepare for the worst, but hope for the best – if there was a risk of an escalation of the koruna weakening beyond any limits we would consider counterproductive in the sense of the optimal monetary policy settings, of course we reserve the right to take action in such a situation. But at the moment, that’s a hypothetical and theoretical matter.