Transcript of the questions and answers from the press conference
When the Bank Board says that the situation maybe implies a need to keep interest rates unchanged for longer than expected in the forecast, it could mean slightly longer or much longer. For some time now, the financial markets have been expecting the tightening to start several months later than forecasted. Looking at the expected level of interbank rates in the forecast, an increase could take place as early as the end of Q2, whereas the market expects it to occur sometime around the end of Q3 and the start of Q4. In the context of these market expectations, is this in line with how the Bank Board today assessed the potential need to delay tightening monetary policy? Or is there an alternative outlook that differs materially from this to one side or the other? To put it in a shorter and simpler way, if monetary policy tightening is to occur later, approximately what horizons did you discuss?
Jiří Rusnok, Governor: I will start and the Deputy Governor will then make additional comments. As I mentioned in the statement, we said above all that there is still huge uncertainty in the outlook for the quarters ahead, especially with regard to the pandemic situation, which is hard to predict, and its consequences in all the various possible measures and the related circumstances for the normal functioning of the economy and society. In this context, we gained no greater certainty today as to when the time might come to start slowly returning to more normal interest rate levels, because that would anticipate the onset of the return to normal life and, in turn, normal economic developments.
We feel that we must consider the start of this process very carefully. Most of us – as far as I could tell from the part of the discussion I attended – feel that today we may be facing a potentially larger monetary policy mistake if we start prematurely normalising monetary policy. And such a mistake would then be hard to take back. On the other hand, the mistake of starting somewhat later than the optimal time – which can mostly be identified only ex post – is one that won’t have any irreparable long-term consequences. So, also in this context, and based on this measure of the two potential mistakes, we think caution is warranted.
So, I would reply to your question by saying that we are certainly somewhere in between the – no doubt technically correct – message of the forecast and what the market is signalling today and how it is pricing this in. However, I can’t quantify in any serious way whether we are closer to the market or still closer to our January forecast. Huge uncertainty persist in this respect. We see no strong signals that we can safely start taking the first steps towards normalising monetary policy. This is mainly because we can’t see a stabilisation and a clear crystallisation of the pandemic situation. We simply don’t know whether the problems may reappear. We can see that we are lagging behind in immunisation – at least immunisation through vaccination – and these are the only channels through which we can gradually reduce the degree of uncertainty that we still have.
Tomáš Nidetzký, Deputy Governor: I would like to add to what the Governor said. Of course there was a debate on the normalisation of the interest rate conditions, but it was focused more on when we will start discussing potential normalisation of the interest rate conditions rather than on any exact timing. As already said, both the forecast and the current situation are subject to great risks and uncertainties. Before we decide to take any steps, we would certainly like to see a recovery taking place not only in our forecast, but also in the economic environment.
We agreed in the discussion – and it has also been mentioned here – that the first signal for us that we can start debating this at all is a calming or resolution of the pandemic situation. I think that’s the first sign. On the other hand, as already said – and there was also agreement on this among all the Bank Board members – we can see no major risk in delaying. This means that if we do then decide to take these steps, we can take them slightly later once we are really sure that they are not premature, because we regard the latter risk as much stronger than the risk of taking them somewhat later, even if we have to wait until the economic recovery is also reflected in the forecast, or in the leading and high-frequency data we are collecting today on the development of the economy.