Transcript of the questions and answers from the press conference
Do we understand it correctly that the alternative scenario with an extended horizon we saw at previous meetings has become the baseline scenario? Should we view the extension of the monetary policy horizon as a temporary thing for, say, the next few quarters, and then the central bank will return to the traditional one of 12–18 months? Or is it a longer-term change in strategy?
An additional question regarding the forecast you have just presented. The forecast shows a weakening of the koruna to CZK 26 to the euro. We know the central bank is now keeping the koruna at stronger levels. Are we to understand this as a change maybe in the intervention strategy as well? Or will the stronger-than-forecasted koruna conversely help dampen inflation? What is your view of this?
Let me start with the second question. There’s no change. The Czech National Bank will continue to prevent excessive fluctuations of the koruna exchange rate. That still applies.
As for the first question, yes, the Bank Board decided that the scenario featuring an extended monetary policy horizon will become the baseline scenario. But we discussed other scenarios as well. Tomorrow there will be an expert presentation by Professor Frait and Executive Director Král where you’ll be able to see and compare all the scenarios. We’ll be as transparent in that as possible.
You mentioned in your statement that you will monitor the incoming data and decide whether to keep rates unchanged or maybe increase them further at the next meeting. Should we interpret this as meaning that, although you see risks in both directions and the forecast foresees rate stability initially and a then decline, the Bank Board, or you, still see the risks tilted towards the next rate move being up, meaning that rates maybe have still not peaked?
You should interpret this as meaning that we are taking inflation absolutely seriously. It is priority number one. It’s currently the biggest problem in the economy. We see the risks as absolutely balanced in both directions. It’s not a commitment to raise rates or to keep them unchanged. We are completely transparently saying that we’ll continue to assess the data and we’ll decide at the next meeting. Nothing more, nothing less.
The statements made by you and your colleagues have contained a concern about the central bank causing or deepening a recession with further monetary policy tightening. Maybe a slightly provocative question: wouldn’t a recession be beneficial in a way to the Czech economy, by reducing the labour shortages facing Czech firms, ridding us of some less productive and less effective firms, and so on? And thanks to the low unemployment, it wouldn’t necessarily even have the social impacts that would be present in other situations. Could you please comment on that?
The baseline scenario of our forecast even expects a slight technical recession. We expect two consecutive quarters of quarter-on-quarter decline. So yes, that would be a healthy recession, one that will also enable inflation to go down. But my intended meaning was that it would be a risk if a much more dramatic weakening of consumer demand and a much greater recession were to come. That is, for us, a risk we must consider when setting interest rates next time. So at the moment, it’s stability and calm, with the Czech National Bank as a firm anchor. You can rely on us to continue fighting inflation.
You use low unemployment as an argument. At the same time, you mention economic problems and a recession. What is your view of unemployment, or what unemployment rate do you expect, at the end of the year?
We have all the figures from our forecast in the background documents. You have them on the slides. So, it’s all open now. We are not expecting a large increase in unemployment. It’s a demand-side risk for us. We are saying transparently that we would take action in the event of demand-pull inflation and a wage-inflation spiral. A rise in interest rates would be on the cards in the event of demand-pull inflation. So far, however, we are seeing mostly cost-push inflation. Most of the inflation between 10% and the expected 20% is of a cost nature.
The Minister of Finance was present at your meeting today. You mentioned moderate wage policy. What is your understanding of that, and are there any “demands” you have on the government in this regard?
We should not overstep our mandate, so I will give no advice to the government on what it should do. However, to lower inflation in the Czech Republic we need two necessary conditions. Our rates, which are now the highest since 1999, are not enough. You can see that growth in the quantity of money in circulation has slowed significantly, as have the credit and mortgage markets. But we need a decrease in the general government deficit next year and moderate wage demands. I have no specific figure. We need wage growth to be in line with labour productivity growth.