Transcript of the questions and answers from the press conference

I want to ask about a decline in rates. You said you would be deciding about a potential increase at the next meeting, but the underlying documents you gave us indicate a possible decline next year. So, what is your view of where rates should be next year, taking into account the uncertainties you spoke about?

Not a word was spoken about a potential decline in rates at the meeting today.

Could you please sum up the debate? What arguments were made in favour of increasing rates and what – probably predominant – arguments were made in favour of keeping rates unchanged?

The main argument for increasing rates is to prevent a rise in inflation expectations in Czech society and among business managers. The main argument against increasing rates is that the current rate level has so far tamed the quantity of money in circulation and thus slowed down the amount of  loans – both corporate ones and mortgages. To sum up, this is why we’re saying that rates will either remain stable or increase. This is what we discussed today.

To follow up, you mentioned faster-than-expected wage growth as one of the risks. We partly saw that in Q2, and now wage demands suggest that it could be significantly more if they are pushed through. At the same time, you mentioned fiscal risks, with the government repeatedly increasing the planned deficits for this year and the next. My question is to what extent is the central bank addressing this risk? And would a rate increase perhaps send out the right signal to both employees in wage bargaining and to the government in creating the budget?

If wage demands get out of control and become really high, and if the state budget deficit keeps increasing, these will indeed be very strong risks for us, and it is highly likely that we will then increase interest rates. The main reason is that this would be a form of demand-pull inflation.

You mentioned the impact of government measures to limit the impacts of the current energy crisis on prices – especially energy prices – as one of the anti-inflationary risks. Did the debate today include an estimate of how this should be reflected in inflation? Has the inflation peak as seen by the central bank shifted in any way?

The measures have yet to be put down on paper. So far I have seen no regulation, decree etc., so we cannot evaluate the impact of these measures at all. We therefore mention this as a risk and have nothing quantified.

A hypothetical scenario, but one against which some analysts and some of your colleagues on the Bank Board have warned: if the rate increases by the Fed and the European Central Bank – relatively rapid ones in the case of the Fed – lead to renewed significant depreciation pressure on the koruna, what action would you – or the majority of the Bank Board in your opinion – prefer? Would it be to intervene further, perhaps even in the amounts seen in spring and summer this year? Or would a bigger rate increase – and therefore a widening of the interest rate differential – come into consideration?

This is an excellent question, but I can only say one sentence in reply: the Czech National Bank will continue to prevent excessive fluctuations of the koruna. Sorry.

Following up on that, is there a threshold you have set under which you don’t want to let the international reserves fall when defending the koruna?


One more question regarding wages. I want to ask how strong wage growth would have to be to make the Bank Board abandon the assumption of relatively stable inflation expectations. Looking at some market sectors, wage growth is about 9%, while the CNB forecast speaks of 2.9%. That’s three times the forecasted value.

We didn’t discuss such a threshold. It would be the subject of our future discussions. Every member would then express their individual view. So, there is no such specific level now. Sorry I can’t be specific about this.

One more question regarding interventions. Was there a lengthy debate on them today? If so, is there anything from such a debate you could share with us besides that one sentence? For example, did you talk about the time scale over which interventions will be necessary? Is it several months? Do you have a time scale, or conditions under which it would be possible to terminate this programme?

There was a perfectly standard debate on this and I can say no more than the one sentence. Thank you.