Transcript of the questions and answers from the press conference

The assessment of the outlook remains unchanged, i.e. inflationary. The risks you mentioned are still the same as in the past. In your view, is it more likely that this one rate increase will be sufficient to dampen the risks to core inflation, or will there be another rate increase, as your latest forecast implied? And in the longer term, is it conceivable that you could, within a relatively short period of time, say within six months or a year, take a step in the opposite direction and lower rates again if those risks do not materialise as you currently expect?

The baseline is that at the next meeting we will assess the degree of tightness of our policy. We will calmly discuss everything further and evaluate it. The Czech economy remains a low-inflation economy and the Bank Board will consider any further steps very carefully. At the same time, however, we are keeping all options open. That is probably all I would say about the outlook.

The decision was, if I may put it that way, a suspenseful one even for analysts. Even the statements made by the Bank Board were not entirely clear until the last moment as to how the Bank would decide. In the end, however, six members voted in favour. So I would like to know what ultimately tipped the balance.

What tipped the balance was the need to remain tight and anti-inflationary – hawkish in the spirit of Alois Rašín. And to provide the public with clear and tangible evidence of that. Expect us to remain tight going forward. We want to curb lending and the credit boom. We want to slow the growth in the quantity of money in the economy. We want to encourage saving and thereby maintain low inflation. We don’t want to return to the situation where interest rates were below inflation and borrowing paid off. Under our law, our mandate is to maintain price stability. That is why a tight stance is appropriate.

Prime Minister Andrej Babiš also commented on the interest rate change in the media. What is your view on that? Do you see it as pressure from him, and is it something you take into account when making your decisions?

We will not allow ourselves to be influenced by anyone. We are here for the future of the country. I am interested in the future and I don’t intend to argue with anyone through the media. I guarantee our independence. Under the law, the primary objective of the Czech National Bank is to maintain price stability and we cannot take any instructions from anyone. Independence and credibility are therefore extremely important to us. In our view, low inflation creates an opportunity for people to work, do business, raise their standard of living, save and build wealth. Low inflation is an environment in which, in my opinion, individuals, their abilities and their efforts can stand out. After that, it is up to you whether you are capable and willing to work hard or not. Skill and diligence are what matters. Through low inflation, we want to contribute to the prosperity of the Czech economy. According to the latest STEM public opinion survey, thanks to the work of our staff – whom I would like to thank – we enjoy the highest level of public trust since 2013. That was the year when interventions in the koruna exchange rate began. Allow me to thank the public and to reaffirm that our goal is to maintain low inflation and that we will not allow ourselves to be influenced by anyone.

Could you elaborate on your approach to the decision from the perspective of domestic and external inflationary pressures? Which of these carried more weight? I would also like to ask whether you considered the impact of your decision on the economy and whether you have calculated by how much you will dampen economic activity with this decision.

We were more influenced by conditions in the Czech economy, particularly the accelerating credit growth and debt financing of increased public expenditure, which are fostering a rise in the quantity of money in the economy. We want to slow that growth in the quantity of money. We want to curb core inflation. Yes, we will probably revise our economic growth forecast downwards, but our primary objective is price stability in the Czech economy. That is our primary objective under the law, and we act in accordance with that law.

One more question regarding domestic inflationary pressures. You have, of course, mentioned property prices and their growth. Which of these domestic inflationary pressures do you regard as the most important, and do you have any prescription, proposal or recommendation for how to change the situation? I am not asking about interest rates or monetary policy at this point, of course.

I regard the accelerating credit growth and debt financing of increased public expenditure, which are fostering a rise the quantity of money in the economy, as the most important factors. In addition, the labour market remains tight and wages are rising at a rapid pace. Prices are increasing above all in the service sector, whose price dynamics are a substantial component of core inflation. Our recipe is tight monetary policy and higher interest rates for longer, relative to what we were accustomed to in the past. I have no other prescription to offer.

You mentioned that you don’t want to argue with anyone through the media regarding communication with the government, or with the Prime Minister specifically. I am interested in what your communication directly at government meetings looks like, given that you are able to attend its meetings. For the first three and a half years you didn’t attend government meetings, so I would like to know whether that has changed and perhaps how the government responds to your suggestions, for example regarding the deficit outlook, and whether communication on monetary policy takes place there in any way.

Government meetings are closed, so I will not comment on them at all.