Transcript of the questions and answers from the press conference

I wanted to ask about the two alternative scenarios. Could you please give us some details on them? One assumes the current rates for longer, the other adds elevated inflation expectations to that. What would the other scenario imply? Could you please also sum up the debate today? The baseline assumes unchanged rates, but three members voted for a hike. What were their arguments and what were the counterarguments?

As for the alternative scenarios, we’ll reach 2% inflation next year according to the baseline scenario. To have certainty, we asked for two additional scenarios to be drawn up. The first one assumes keeping rates unchanged for longer, in which case we have much greater certainty that we’ll get to – or even below – 2% next year. The other scenario also looks at whether we are able to ensure price stability next year with unchanged rates even if inflation expectations do not evolve as we expect and remain significantly higher. This scenario also showed that if we keep rates unchanged for a long time, we can deliver price stability. That’s roughly what the two scenarios were about.

And now to the debate. It’s about fiscal policy and wages. As for budgetary discipline, I think budgetary policy, fiscal policy, is now the biggest inflationary factor. Unless a long-term credible consolidation package is announced, it will create inflation pressures going forward and we are probably going to have to raise interest rates and fight against the impulse the economy is receiving from the government, against the inflationary, demand impulse caused by the money going into the economy due to the government deficit.

June will therefore really be very much about whether we will raise rates or keep them unchanged. Again, no word was spoken about lowering interest rates. We are really on the verge of having to switch our strategy to raising interest rates unless we truly see that fiscal policy is credible and responsible.

The message of today’s meeting thus goes largely against what the market was still expecting, even though, since the previous meeting, when you opted for a similarly strict rhetoric, the market has lowered the bets on how much interest rates could decrease by the end of the year. Is it possible to infer from the debate today that no rate cut at all is likely by the end of the year, in light of the alternative scenarios and the Bank Board’s view of the baseline scenario and the overall situation?

We will take it meeting by meeting. We will base our decisions on data. So, I can’t say when exactly the turning point may come, but I will give an example. At the meeting today, there were even suggestions to raise rates by more than 0.25 percentage point. So, this shows that the Bank Board members are determined to fight inflation and that now we are not thinking about lowering rates at all.