Transcript of the questions and answers from the press conference

A question about something you mentioned in one of the last sentences. If the risks to the new forecast perceived by the Bank Board materialise, what could that lead to, especially with regard to economic growth this year and the outlook for growth in rates, which is similar in the new forecast as in the previous one, implying a relatively sizeable monetary policy tightening in the second half of the year and at its end?

We devoted a fairly large part of the debate today to this. It’s clear we are still experiencing huge uncertainty as regards the course of the pandemic, which in turn strongly determines economic life and hence the course and outcome of the year in the economy.

There is clearly a strong uncertainty – or a risk, if you wish – that the situation may deviate in a negative way from our baseline scenario, which predicts a gradual rise in interest rates from roughly the middle of this year onwards. This risk consists in the lockdowns and various restrictions being extended for longer than, say, until the spring months as currently assumed by the baseline scenario. They could also possibly be stepped up. This could be related to all the potential complications of the epidemic situation, including the now frequently mentioned virus mutations, and so on.

That would of course lead to probably appreciably lower economic output overall for the year as a whole. It would no doubt also foster stronger anti-inflationary price behaviour, passing through not only this year, but also over the longer term. In turn, there would also probably be a lower need to tighten the monetary conditions as regards the interest rate settings.

Of course, the evolution of the exchange rate is an open question. But if we apply the relationship that has repeatedly been empirically documented in the recent period, namely that a deterioration in economic output in the Czech Republic – and, in this situation, probably also linked with worse-than-expected developments in the relevant other countries – should probably also lead to slower exchange rate appreciation, as the export performance of Czech economy would be lower, and so would incoming payments in euros and other reserve currencies. So, this would – automatically to some extent – foster a lengthier period of very accommodative monetary conditions.

So, that is roughly the logic behind our considerations. We are saying that if things work out in accordance with our assumptions, i.e. if the situation gradually improves from roughly the middle of the year or, say, the start of the warmer period of late spring, then we expect there to be room for the gradual first steps towards what we call normalisation of the interest rate conditions.