Transcript of the questions and answers from the press conference

You mentioned services and property prices in particular. I am also interested in fuels, whose prices are rising again, as well as energy prices. Do you also regard this as an inflationary pressure, and did you take it into account today?

Yes, it is an inflationary pressure, and we took it into account.

And how strong an inflationary pressure do you think it is?

Inflation is about growth in the quantity of money in circulation, new lending, and the indebtedness of households, companies and the government. That is the main essence of core inflation. Fuel prices are outside core inflation. They constitute an upside pressure on headline inflation, but the most important thing for us is to reduce core inflation going forward. That is therefore what we are mainly looking at.

The second question concerns the budget deficit, which will be over CZK 380 billion. I would like to know your view, and the view of the Bank Board, on this. Is this also a potential inflationary pressure?

An increase in the general government deficit is an inflationary pressure; it contributes to higher inflation in the Czech Republic. In the long term, a policy of reducing the general government deficit would be consistent with the fulfilment of our inflation target.

My final question: Prime Minister Andrej Babiš has once again repeated that, in his view, the Czech National Bank’s interest rates are too high. I would like to ask whether you feel this pressure from the Prime Minister. Is this something you take into account when making decisions on the Bank Board?

At the next meeting, we will be deciding between keeping interest rates unchanged and raising them. That is probably the best answer.

I would like to ask whether you discussed developments in the yield curve. You mentioned that the rise in longer-term rates, which is also underpinned by higher foreign rates at the longer end, is tightening monetary conditions. This could subsequently feed through into lending. However, the curve is also quite elevated at the short end compared with the analytical consensus on the outlook for the central bank’s rates. Over the coming months, the market, according to forward contracts, sees several increases in the repo rate. According to the market, this would even amount to a full percentage point over the next 12 months. I would like to ask how you view this, whether you see any other factors – and, if so, which ones – that are pushing up short-term interest rates in the market. And do you see it as doing some of the work for you, or are there simply other market factors at play besides the monetary policy outlook?

We discussed the yield curve at length. In our view, it is currently significantly influenced by the United States, or by the policy of the US Fed, on which attention has been focused recently. We have to keep our focus on domestic core inflation and steer our policy towards reducing inflation in the Czech Republic. In other words, we have to abstract from the impact of the US central bank on our yield curve.

I would like to follow up on my colleague’s question. How do you assess the possibility, risk or likelihood that the automatic tightening of conditions through the yield curve will disappear if you don’t deliver an interest rate increase yourselves?

We have already delivered an increase in interest rates. We raised interest rates in June. We have never reduced them as much as the euro area has. Our rates are significantly higher than those in the euro area, and we are prepared to tighten monetary policy further if it becomes clear that the inflationary risks could actually materialise. So we want to remain hawkish, but I don’t want to engage in speculation about the market and market expectations. But just as we showed in June, we will not hesitate to raise rates if the situation requires it.

One more question about the major central banks. In your discussion, how did you perceive the impact of the decisions taken by the central bank in the United States and by the ECB? Do you see this primarily as an inflationary risk through the exchange rate channel, or as an anti-inflationary risk through economic activity and so on?

Yes, it is important for us that the koruna remains strong. We noted the impact on the yield curve, but most of the discussion was about domestic issues, domestic inflationary pressures, and the full support among all members of the Bank Board for delivering low inflation in the Czech Republic and maintaining a low-inflation environment. That was the most important thing.