Transcript of the questions and answers from the press conference

I would like to ask a little more about today’s discussion, because, quite unusually, the Bank Board was divided over today’s increase. The inflation outlook, meanwhile, is not particularly good. According to your forecast, inflation will be above the upper boundary of the target next year. Could you describe the discussion in a little more detail? That is my first question. My second is how you expect the next discussion to proceed. In other words, can you say in advance whether the next decision will concern a possible further increase, or whether it now looks as though rates will remain stable for some time while you assess developments, with the subsequent decision potentially going either way?

The discussion was about whether our current tight monetary policy is sufficient or whether we should tighten it slightly further. It was simply a matter of fine-tuning the degree of monetary policy tightness. We agreed that this does not mark the start of a new cycle of rising interest rates; rather, we fine-tuned the degree of monetary policy tightness. This also means that we will consider our next step carefully, assess everything very thoroughly and continue our discussions. There’s nothing more we can say about the future. We are keeping all options open, but we want to be careful and thorough, base everything on data and focus on ensuring that inflation remains low over the long term.

I would like to ask about criticism from Prime Minister Andrej Babiš, who has long maintained that the Czech National Bank’s interest rates are set too high. How do you view this criticism, and has the Prime Minister discussed the matter with you?

We do not comment on political statements. We focus on our mandate, which is to combat inflation.

It was also announced today that a sectoral tax on banks is likely to be introduced. What is your position on this? I know that your predecessor, Mr Rusnok, was sceptical about it. Do you share his view?

We do not comment on fiscal, or budgetary, measures.

I would like to return to today’s discussion. Could you elaborate on the arguments put forward by the Bank Board members who did not vote for the rate increase? What is your opinion on the arguments that were made against raising rates?

We agreed that we entered this cost shock period with very tight monetary conditions, made even tighter by the fact that longer-term interest rates and bond yields are also relatively high. Financial conditions are therefore very tight. There was agreement on that. We only discussed whether, having demonstrated in June that we want to fight inflation, we should take a second, measured step and show the public that we really mean it and want to do everything we can to keep inflation low over the long term. We cannot, and nobody can, ensure that inflation is around 2% every month. But we want to do everything we can to use tight monetary policy to achieve a low-inflation environment in the Czech Republic over the long term, so that the public can rely on that and rely on the Czech National Bank.

Given that you expect, and the forecast also expects, a temporary increase in headline inflation, what is your quasi-pain threshold in terms of real interest rates? If the real interest rate falls to, say, 0.5 percentage point or 25 basis points.

We did not discuss that at all. We have no such threshold. In my view, it is good to have positive real interest rates over the long term and to encourage people to save. But I am not aiming for positive real interest rates every single month. I want them to be positive over the long term – by which I mean three, five or ten years – and to encourage people to save. Now is the right time to save. It pays to save now. We are calling for low wage growth. We do not want to repeat the period when real interest rates were negative for more than ten years, encouraging borrowing and fuelling inflation. That is the rationale. So the long-term perspective is important to me.

You have said that the decision was intended to prevent the higher energy prices from having a second-round effect on other prices. How did you assess the latest developments in oil commodity prices, which have fallen relatively quickly over the past week?

The decision was not influenced by the fluctuation in oil prices over the past two or three weeks. It was driven by our desire, both in June and today, to demonstrate our determination to curb inflation expectations in the Czech Republic and to show that the Czech National Bank is here to do everything in its power to ensure low inflation in this country.

We do not have the exact forecast figures in front of us, but judging by the chart available to us, the forecast appears to envisage the 3M PRIBOR rising to around 4.5%, which would also imply a further increase in the policy rate. On the other hand, the Bank Board has previously preferred to smooth the cycle rather than raise rates rapidly and then cut them rapidly again. We saw this in the previous episode. So I would like to ask what approach you favour, given that the forecast puts average inflation next year above 3% and thus slightly above the upper boundary of the Czech National Bank’s target. However, it comes at a point that may be too short for the monetary policy decision-making horizon.

It is a model-based forecast, albeit one prepared by our best experts here at the Bank. We will approach any further step very cautiously and prudently. We will certainly allow some time to assess the effects of our actions so far – the rate increases in June and today. We acted pre-emptively, during a period of low inflation, and in a forward-looking manner. That was important to us. So yes, we know that inflation may rise slightly next year, but we expect it to be low again afterwards.