Transcript of the questions and answers from the press conference

I have two questions. The first is: what you said about future rate cuts implies that today we probably saw the last 50 point cut in rates. Is that the correct interpretation? You’ll certainly not say for sure, but today probably being the last in a series of 50 point reductions, and the future bringing fine-tuning or a halt, is it right to think of it this way?

The second question relates to the assessment of the risks. In your overview today, you mentioned an increase in wage demands in the public and private sector as one of the inflationary risks. In fact, you’ve replaced what you had there last time, which was a possible slow decline in inflation expectations in the economy. I’d like to ask whether you could say a little more about how you view what we are hearing in the public space about wage demands, including possible increases in public sector wages by the government.

As regards the first question – yes, it’s more likely that the next step will be either a rate cut of 0.25 percentage point or a halt in rate cuts rather than a continuation of the rate reduction process in steps of 0.50 percentage point. At the same time, however, we are keeping all options open. This is really just an assessment of the likelihood you asked about.

As for question number two, the large quantity of money in the economy is currently a major problem. There is a large amount of liquidity, growth in services prices and ensuing further pressure on the risk of a wage spiral across the economy. Such a spiral could be supported by excessive growth in public sector wages. It would be reflected in the private sector and again have an inflationary effect. So, we’d like to warn against that.

As you are mostly indicating upside risks to inflation in the statement, and as you are signalling a slowdown or even halt in the process of easing monetary conditions already at the next meeting, the following question arises. Could you please explain why, in today’s debate between the two options you considered – and on which you voted and made a majority decision – most of you decided for the larger step, the more dovish one, perhaps some would say the riskier or bolder step.

I still view it as a hawkish policy. Over the ten years before Covid, rates were 0.6% on average in the Czech Republic. Now, even after this cut, they are 4.75%. Rates are still restrictive. They are positive in real terms. Before Covid, rates fostered higher inflation. Now they are fostering lower inflation. So, most of the Bank Board members felt this level is still very restrictive and well above both current and expected inflation. That was the main reason.

The market now expects Czech rates to end the year somewhere around 4%. I know you won’t assess this directly, but perhaps just do you feel that this is broadly in line with the way you see it?

We didn’t discuss rates at the year-end. We have no such target. We will now focus fully on every coming meeting and assess the new data. Above all, we will assess the new forecast and respond accordingly.