Transcript of the questions and answers from the press conference

A tough question about the neutral rate. There’s been a lot of talk lately that maybe it’s higher than it was before. So, at what level do you and your colleagues see it now? Are we to take it to mean that the rate cuts might actually stop around that level? Or will rates go below that level as your forecast suggests?

The definition of the neutral rate is important. If you define the rate as a terminal rate – short-term rate – that we see in the longer term and that we’d like to reach on average, that would not accelerate inflation, or at least would mean that the economy is in an equilibrium state, this is exactly what we are looking at now. We will present a more detailed analysis in May. So, this is something the Bank Board does not yet agree on exactly. The important thing we want to communicate is that this rate will likely be higher than expected by the current forecast and will likely be higher than where interest rates were set in the past.

I would like to ask about inflation in services, which you mentioned. Do you see this as a short-term effect or a longer-term trend? What implications does it have for your monetary policy considerations?

The Czech National Bank has achieved the target after five years. Over the last 20 years, interest rates were lower than inflation. This paved the way for serious inflation – we can’t be surprised that such inflation emerged here.

To do everything to prevent inflation from happening again, we need to focus on growth in the quantity of money in circulation, which has basically been tamed, and on the part of inflation that is rising now, namely services. This is why it’s actually the most important item now. It is growing. It has not yet come to a halt. And that’s why I think that if our policy is tighter for longer – tighter relative to how policy was set in the past – we will also tame services price inflation.

You mentioned an excessive increase in lending as one of the upside risks to inflation. Do you have signals from the real economy that such a risk exists?

I think there are currently two factors that could kick-start growth of money in circulation again, causing a risk of inflation in the future. As we gradually lower interest rates, mortgages and loans may become cheaper, so property prices are beginning to rise. We’ll see if the Czech Statistical Office confirms that. So, the mortgage and property markets are recovering. The second factor is government deficits. If they are long-running, permanent, they will also fuel growth in the quantity of money in circulation.

I have a question about the koruna. You mentioned that it’s one of the inflationary factors. Can you say whether the koruna where it is now – roughly 2% or 2.5% weaker than the forecast indicated – is at a level that is more or less fine and appropriate with you? If the koruna were to continue weakening, where does your “pain threshold” lie?

We have given the exchange rate of the koruna a lot of consideration. It is an inflationary risk if it continues to weaken. That would be something we wouldn’t like to see, because a further weakening of the koruna is not consistent with us keeping inflation low.