Transcript of the questions and answers from the press conference

Today you took the first step on the downward path of rates. However, your statement makes it clear that the Bank Board wants to be very cautious about how the process will continue and the process can be halted if the disinflationary trend is not sustained, and so on.

In a situation where we really don’t know the size of the effect of the repricing of goods and services in January and the size of, maybe, the change in energy prices, why did you decide to act now rather than wait for the January figures? Your colleague Mr Procházka said less than two weeks ago that taking this step in December could be a sign of the Bank Board’s confidence in being able to deliver low inflation already at the start of next year. Was this a factor? Can you please explain the logic behind your decision?

Yes, we are confident that inflation will already be low next year, but we still see a risk of it being not 2% but maybe around 3%. That’s the logic – a cautious cut in interest rates. And we are aiming further than just January. We are aiming at a year or more ahead, where, at the horizon, we see inflation very low but more at the upper boundary of the tolerance band.

So, we must remain hawkish to deliver inflation of not 3%, but 2% or slightly below 2%.

If inflation and other parameters develop in line with the forecast, how do you view the possibility that the process of lowering rates could involve bigger steps than 25 basis points in order to bring the actual interest rate path closer to what is implied in the forecast?

We want to be as open as possible, so on the one hand we are saying that we can stop the process of cutting rates at any time. We are pointing out that this may happen if the forecast is not met and inflation is more persistent than we think. However, the exact answer to this question is that it may be so if inflation really continues to fall and we see its outlook falling below 2% and the core inflation outlook also falling – we still have a core inflation outlook above 3%. We will now be watching core inflation closely, as we can hardly influence energy prices now. So, if we can see the core inflation outlook falling below 2%, or towards that level, the reduction in interest rates can really be stronger, and the answer to this question will then be yes, we can cut rates more significantly.