Transcript of the introductory statement from the press conference - 19 December 2012

GOVERNOR

I will start with the important thing: we decided unanimously to leave interest rates at technical zero.

As for the reasons for the decision, they were relatively easy for us to identify. Monetary-policy relevant inflation will be in the lower half of the tolerance band around the target. The forecasting system still includes an unrealisable decline in market interest rates and a rise in rates sometime in 2014. Moreover, we assessed the risks to the forecast, which we assessed now, between two forecasts, as being slightly anti-inflationary. So from this perspective the decision was relatively easy to make. The easiness was due not only to the word “anti-inflationary”, but also to the word “slightly”.

As regards the current situation, the present value of inflation is slightly below that expected by the forecast.

The external environment is virtually unchanged in terms of consumer prices. Producer prices are slightly higher than we expected. By contrast, GDP and expected interest rates in the euro area, i.e. the environment that is the most important to us, are down slightly.

Commodity prices are again slightly lower – the current level as well as the Consensus Forecast expectations – while it is hard to identify any differences in the exchange rate in the year ahead. Even the differences in 2014, which look so impressive in the chart, are negligible if you look at the numbers.

Since the forecast we have learned of a mix of indicators suggesting a larger contraction of the economy than we expected, subdued economic activity, signs of a downturn on the labour market and slightly lower oil prices. On the other hand, producer prices and some other price categories slightly surprised us in the other direction. So, taken together, the mix, as I said, is slightly anti-inflationary. However, thinking back on it now during the press conference, I would in fact say that the word “slightly” is perhaps the more important of the two, because there has been no dramatic qualitative deviation from the forecast.

Now for a chart showing the situation I have just talked about. You can see the anti-inflationary surprises – GDP, inflation, the average wage, unemployment. They are all acting in the same direction.

Let me conclude with what we regard as important, and what we regarded as important for our decision today. We saw anti-inflationary risks in economic activity as well as in slower wage growth. We saw them in current domestic price developments as measured by consumer prices. We saw them in developments abroad. By contrast, agricultural commodity prices are indicating potential in the opposite direction. But what is also very important is that the koruna exchange rate, which is deviating from what we expected in the forecast in the weaker direction, is partially offsetting the anti-inflationary domestic developments. This leads us to the adjective – sorry, adverb – which have I used several times: “slightly”.