Transcript of the questions and answers from the press conference

I have a question regarding the strong koruna. You said it’s helping to dampen the inflation pressures. Nevertheless, I’d like to ask whether you discussed it today in the Board, and whether you also discussed the drawbacks, i.e. the fact that it may, at some point, start hurting Czech exporters and that, at least according to some opinions, it seems the appreciation is being supported by somewhat speculative purchases by foreign investors, who are using your intervention commitment as a backstop against losses. Did you discuss this, including the drawbacks, and if so, what was the conclusion?

Our biggest problem at the moment is high inflation, not exports. A strong koruna is the cornerstone of our effort to lower inflation, as it makes imports cheaper and acts very quickly against inflation. It acts more quickly than interest rates. So, a strong koruna is now very important for us. As regards future developments, it still holds true that we will prevent excessive volatility of the koruna exchange rate.

I would like to ask about the alternative scenario for the future path of interest rates, which the majority of the Bank Board preferred today if I understand it correctly. So, instead of interest rates rising initially and then starting to fall again soon, your preference was for rates staying where they are for longer. Can you say a bit more about this scenario? The interesting thing on the market is that the market is pricing in a decrease in interest rates one year ahead of up to 150 basis points. As rates should, or could, remain where they are for some time, the question is whether that’s the correct view of the situation. So, to sum up, as my question is long-winded, how long does the alternative scenario you preferred today expect rates to stay at the current level?

I expect interest rates to remain higher than the market is pricing in now. There is a minimal difference in the impact of the alternative scenario on inflation and the economy compared with the option of raising rates and then lowering them again. The exact data will be presented tomorrow by head of the Monetary Department Petr Král, and above all Bank Board member Oldřich Dědek, whom I would like to thank for his work, as he is leaving the bank, I also want to thank Deputy Governor Mora.

Can you please sum up in a nutshell how come inflation in the Czech Republic is now so much higher than, say, in the euro area or in other countries. The IMF outlook for this year is around 6%. For the Czech Republic it’s over 10%. What’s the reason?

Despite the fact we have such high interest rates. It’s a combination of a cost shock and demand inflation, above all the cost shock. We’ve discussed this a lot, and the conclusion is that in the next five and a half years, for which the majority of the Bank Board have their mandate, we will have to be much stricter than the Bank Board before us, to prevent so many demand pressures from emerging, as they can then gain momentum if a cost shock hits the economy.

Just to make sure I understand correctly – is it the fault of the previous Bank Board?

I highly appreciate the work of my other colleagues and won’t comment any further. I respect all the previous governors. What I mean is this is a lesson for the future, a slightly different approach. As you know, I am in favour of a strong koruna policy, and in addition to that, the second vision we have is to be slightly more strict than in the past and not allow inflation to gain momentum.