Transcript of the questions and answers from the press conference

We couldn’t but notice that the presentation and your statement didn’t contain the previously used sentence that the decision at the next meeting would be between a rate hike and rate stability. I just want to make sure whether this is an intentional change in your communication, whether it means that any future change in rate is likely to be a cut, and whether it is at least theoretically possible, or how likely is it, that this could already happen in September.

We didn’t talk about lowering rates at all. A debate will be on the agenda in the autumn at the earliest. It will only be a debate. All options are open. Our forecast says that core inflation will be above 3% next year, so the outlook is still inflationary and the risks are still inflationary. Currently, therefore, neither inflation nor the core inflation outlook allow us to consider lowering rates.

As regards the end of the intervention regime, should we view it as the first step, or preparation for easing monetary policy conditions, given that the koruna weakened quite significantly in reaction to it? In the past you preferred a strong koruna as an auxiliary tool in the fight against inflation and communicated that the strong koruna was helping to reduce export activity, wage growth and so on, and that you preferred to dampen the economy in this way rather than with high rates, which could harm households and small firms. So, now that you have started de facto easing monetary policy via the exchange rate, which reduces the room for lowering interest rates, does this mean your view of how to influence the economy – the two parts of it, the euroised one and the koruna one – has changed?

It hasn’t changed, and I’ll explain why. In the interests of transparency, because we want to be a transparent central bank, we today formally ended the intervention regime announced in May 2022. We have not intervened on the foreign exchange market to counter weakening of the koruna since October 2022. We considered it necessary to formally end this regime, as it no longer made sense. At the same time, however, we resumed the programme of sales of part of the income on international reserves. And we would also like to emphasise that it still holds true – albeit with a slightly amended wording – that in the managed float regime, we will always as a matter of principle prevent excessive fluctuations of the koruna exchange rate, especially fluctuations that would jeopardise price stability and financial stability, i.e. our mandate, at any time the Bank Board deems it necessary.

I will follow up on my colleague’s question. Does this mean we should not interpret today’s decision as paving the way, or laying the groundwork, for lowering monetary policy interest rates? Part of the market views it that way. That was visible in the market reaction today. My second question: could you tell us what path of policy rates or market rates is foreseen by the two alternative scenarios up to, say, the end of this year? The way I understand it, the Bank Board mostly agrees with the alternative scenarios, is that correct?

Don’t interpret today’s decision as a change. A strong koruna is still important for the whole Bank Board. It is a very important means of achieving low inflation. It should be understood solely as a formal step to end the intervention regime announced in May 2022, motivated by transparency of our monetary policy.

As regards the future, from now on everything will depend on new data and the assessment of new data. We will be dependent on new data. We will assess them all. All options are open. Remember that half a year ago, many people were calling on us to raise rates. Today you are asking about cutting rates. Half a year ahead, the situation may be completely different. We need to deliver a decrease in inflation to the public. Inflation is high and the core inflation outlook is still high, so this doesn’t allow us to cut rates now. We must base the next decision on new data.

Most of the Bank Board members are inclined towards the alternative scenarios. Hence the sentence in our statement that we expect higher rates than indicated by the baseline scenario.

Just an additional and more general question. You are sometimes criticised for passivity. You have said that the steps to keep inflation lower will be sufficient. You have assured the public that this will be the case. So, is this a definitive end to your initial strategy? Is keeping rates high the new strategy? And is increasing rates theoretically on the table, even though just now we were talking more about lowering rates. If things don’t go well, are you considering it?

It is now appears that the Bank Board is hawkish. So, all options are open. We must still take increasing rates into consideration if demand in the economy starts to expand. We have inflation of 9.7% and a core inflation outlook for next year of more than 3%. We need to bring these two inflation figures – core inflation and headline inflation – down. So, increasing interest rates is not off the table. There is no change in our strategy. It has been the same since I became governor. We want a strong koruna – we’d like that, but we need a strong economy for it – and we have the highest interest rates in more than twenty years. Together, these are the tightest monetary conditions in 25 years, now tightened further by the fact that expected inflation is going down, so real interest rates are still high.

Regarding the renewed sales of income on international reserves, can you tell us now whether the volume will be the same as it was the last time the sales were performed? Can you at least hint at whether it will be higher or lower? Have the sales formally started? Are they going on in the market now?

We do not, and will not, publish any such information.