Transcript of the questions and answers from the press conference
Could you tell us – or at least hint at – what was the recommendation of the Monetary Department, and possibly also that of the Financial Stability Department? Could you at least say whether the recommendations were higher or lower than what you decided? And if you deviated from the recommendations, what was the logic behind that?
As a rule, we don’t publish these recommendations. However, the recommendations were very close to our final decision, so I wouldn’t look for anything fundamental there. We basically didn’t deviate from the recommendations. I’d say we are within the range of the recommendations. There was probably a small difference between the two departments, but I really don’t think it’s all that important in the specific situation.
The financial market potentially expected an even bigger hike, almost 150 basis points, so your step today has led to a further modest weakening of the koruna and evidently a need for greater interventions by the CNB in the future, or at least continued interventions. I’d like to ask whether you took this into account, whether the current Bank Board is comfortable with the use of the exchange rate to fight the imported component of inflation. This is related to a technical question: could you hint at how the current intervention regime is defined in terms of its end date? Is there a date when it will end automatically, or does the Bank Board have to extend it at each subsequent meeting, or is it in place indefinitely and the Bank Board does not have to do anything until it actively discontinues it?
The current Bank Board is clearly in favour of using the exchange rate at the moment as an additional instrument in our fight against inflation, which we are conducting primarily using interest rates. As you can see, we are increasing them quite forcefully. However, as we declared when we first used the intervention regime – the first use being connected with the outbreak of the war and the second with, let’s say, the change in sentiment following the announcement of changes in the Bank’s leadership – our goal is not to achieve a specific koruna exchange rate level or get rid of a specific amount of international reserves. We declared – and this still applies – that our goal is to dampen fluctuations and avert an undesirable weakening of the koruna, because that would be an additional channel adding fuel to the fire in terms of inflation pressures. Nothing has changed about that.
We discuss this informally every week with the relevant experts at a short meeting which is part of the Bank Board meeting. And every week we get a report on how things are going and what the market looks like. And every week we de facto confirm the continuation of the mandate, which is set as I described it. This means the mandate is basically valid until further notice and the Bank Board is informed about its course on a regular basis.
Following up on my colleague’s question, I would also like to ask about the active use of the international reserves. What is the Bank Board’s assessment of the effects that this additional instrument has had on the koruna so far?
It is probably too early for an in-depth assessment. The instrument has been used systematically for about a month, or even less. But let’s say approximately that we already have some comprehensive information after that month.
The goal was to prevent a currently undesirable weakening of the exchange rate, and that is being achieved. Looking at the exchange rates of currencies that are in a similar situation, such as the forint and the zloty, they are depreciating to a greater or lesser extent. This is because the market sentiment is such that smaller currencies are tending to be sold at the moment, of course.
As I said, this is an additional instrument. Our aim is to avoid having one more source of inflation on top of what we already have and must absorb somehow – especially the component passing via imports, which is important in our case. This includes almost all energy items, commodities and so on and so forth.
So much for a very superficial assessment. In this respect, I think the instrument is working well. The time for a deeper assessment will surely come later.
You usually refrain from commenting on amounts until the publication of data on changes in the stocks of international reserves and open market operations. However, they can be inferred to some extent from the CNB’s ten-day balance sheet, in the form of a decline in liabilities to banks and, in turn, a decline in the balance sheet total. Based on the latest balance sheet, it looked to be about EUR 5 billion. Could you at least say very roughly that the CNB sold amounts in the order of billions of euro, tens of billions of euro, or at least comment on this very approximately?
My second question pertains to the strategy per se. As you mentioned, market sentiment towards currencies like ours is quite negative. There has been a turnaround in the monetary policies of major central banks like the Fed, the ECB, the Swiss National Bank, and in their outlooks. Our current account has switched to a deficit, owing of course to commodity prices. All these are more or less fundamental reasons for the exchange rate being weaker. So, does the CNB really want to fight the fundamentals shifting the exchange rate to certain levels, just like they are shifting the exchange rates of other currencies on markets similar to ours?
As for the volumes, we regularly report on them forty days after the relevant period. So, the data for May will be published in July, and the June data after that. So, I would keep it at that.
Regarding the more fundamental question of whether we want to fight the fundamentals, speaking for myself, and I think also for the majority of the Bank Board, we certainly don’t want to do that in the long term. This is certainly no path towards a reversed exchange rate commitment or perhaps a different exchange rate regime. It is truly an extraordinary additional instrument in an extraordinary situation. That’s how it should be understood and applied. We have certainly done it that way so far, and I think this approach is justified. There’s also a bit of a difference between us and some other countries in that we have a much stronger arsenal than them, so I understand that it’s more tricky for them.
A technical question regarding the statement. When you say that a further sharp rise in market interest rates is consistent with the baseline scenario of the spring forecast, could you just say to what extent this further sharp rise in rates has been delivered today, or are we to understand this more as an outlook for future meetings?
We are still in the first half of the year. The spring forecast talks about this above all with regard to the first half of the year. However, the actual state of affairs as such is crucial, of course. As I said, with regard to the future, all will depend on the incoming data and the assessment of it.
Again, I cannot now speak for the future Bank Board, which I will not be a member of and which will include new members, and say what they will or won’t do. Speaking for myself, and I think also for the other departing colleagues and the other Bank Board members who voted for this decision, my view is that we cannot be limited by a ceiling. Should the situation escalate, which I don’t expect to happen under normal circumstances, unless yet another black swan appears, I think a steep, dramatic increase will not be necessary. However, if things escalate further, it cannot be ruled out. So, I guess I’m not able to give you a specific answer at the moment.