Transcript of the questions and answers from the press conference

A question regarding your statement. After the previous Bank Board meeting, the opinion of the majority of the Bank Board diverged from the forecast in the sense that according to most Bank Board members, monetary policy tightening would probably start later than expected by the forecast. This sentence is not present in your statement today, so I want to ask whether this changes the view – the disagreement of the Bank Board with the forecast – as the risks to the forecast as perceived by the Bank Board shift.

You’re right, this sentence isn’t there in this explicit form, even though we are referring to the same forecast and an only partial update. However, I’d say that the content of the debate at the Bank Board meeting, and the predominant opinion, was very similar as last time during the November meeting. Nevertheless, as they say, you cannot step into the same river twice.

We didn’t consider it necessary to emphasise this sentence explicitly, given the relatively complicated mix of risks which we still see as relatively very strong – like the forecast itself, after all.

On the inflationary side, they include the improvement in economic output in Q3, and the, say, better course of this wave in terms of shutdowns of the economy, in the sense that industry, for example, which is very relevant for us, has not been hit severely by the restrictions so far. That holds true for Czech industry and for industry in our main trading partner countries. Of course, in the longer view, there is some light at the end of the tunnel in the form of the gradual vaccination process that is now hopefully also starting in Europe. So that’s the inflationary side.

I forgot to add, on the inflationary side – and I mentioned this in the statement – the situation is of course markedly different compared with the previous meeting as regards the fiscal outlook for next year, which has changed substantially in the meantime. In November, we originally expected a negative fiscal impulse for next year under our methodology. That methodology is not equivalent to the absolute general government deficit figure. It’s somewhat broader in relation to year-on-year developments, potential output, the output gap and other characteristics.

So that’s the inflationary aspects and signals.

On the other hand, of course, it still holds true that the situation is very uncertain in terms of the current measures, their duration and the depth of their impact on the economy in the Czech Republic and especially in our main economic partner countries. Of course, the koruna is stronger – quite considerably – than the forecast assumed.

So, the situation is quite complex. From this point of view, we can say that, from the model perspective, the topicality of considering a future gradual increase of interest rates back to normal levels has risen somewhat, but on the other hand the anti-inflationary risks are also sizeable.

To sum up, the sentence isn’t there explicitly, but I’d say that the large majority of the Bank Board members still perceive the situation in the same or a very similar way. This means that we will consider very carefully the moment when the time is ripe to move interest rates upwards. We don’t want to prematurely put at risk the consolidation of the economy back to normal with a premature tightening of the monetary policy conditions.

A moment ago, the Ministry of Finance announced it was preparing a budget stopgap. If that really occurs, is it something you would have to consider in your next monetary policy steps? Would it be a problem for the economy? They de facto admit that salary increases will have to be put on hold, that it won’t be possible to apply for subsidies, and so on.

It’s hard to answer this question immediately and comprehensively. It is a problem to some extent, at least from the perspective of uncertainty. That’s bad, of course. We are living in times so uncertain that authorities – fiscal, monetary and any others – should, where possible, stabilise the situation and send out calming signals. That’s the first problem.

As for the fundamental impact, I firmly hope that this stopgap would be short-lived, in the order of weeks or a few months. In such case, I think it shouldn’t be a huge problem and it shouldn’t enter our considerations regarding monetary decisions either. Of course, if that were not the case and an adverse scenario of a longer-lasting stopgap materialised, it would mean, simply speaking, that the degree of fiscal stimulation would probably be lower, maybe not for all items, but at least for those with a relatively solid multiplier effect, above all public investment and items financed or co-financed from EU funds, which may now play a relatively important role.

So from our perspective, I would then see it on the anti-inflationary side, as a factor we would have to take into account in further monetary policy considerations and decisions. However, it doesn’t immediately put the functioning of the Czech economy at risk. But as I said, it’s not an optimal signal. It’s certainly negative with regard to perceived stability and predictability.

How, in your opinion, will the government’s new measures effective tomorrow affect the CNB’s outlook, given that they are limited to the services sector?

We said at today’s meeting that our still valid November forecast contained, in addition to the baseline scenario, two sensitivity scenarios. One of them was a fiscal expansion scenario, and the other was a worse pandemic situation scenario.

The fiscal one is more or less materialising. The worse pandemic situation scenario is luckily not materialising so far. However, we can’t say that there have been no changes going in that direction. Formally, we are going in that direction, but the restrictions have so far been softer than in the spring and overall shouldn’t fundamentally jeopardise the Czech economy as a whole to a greater degree than up to now. It’s more or less the situation predicted by the baseline scenario, perhaps with some minor deviations. Unfortunately, the services sector, or part of it, will of course continue to be hit relatively severely. Industry, I hope, should remain almost unaffected.

So, it doesn’t depart from our – slightly modified – baseline scenario, and it therefore doesn’t lead to any fundamental monetary policy considerations on our part. That’s also why today’s decision was basically trouble-free and unanimous. Of course, it will depend very much on the situation around us. We are highly dependent on how the pandemic situation evolves after widespread vaccination hopefully gets going in our country and abroad. We’ll know more at the start of next year, probably not before the next situation report in February, and perhaps even more in May.