Transcript of the questions and answers from the press conference

Clearly there were some arguments to cut rates by 50 basis points, from at least one member. I want to ask whether you can just summarise or paraphrase what these arguments were and what arguments were against that, i.e. for the majority decision to cut by just 25 basis points.

The argument for a greater reduction was an assessment of the inflation outlook as less risky, a lower risk that inflation might return, so a smaller risk of inflation being higher above our inflation target in the future. However, the overwhelming majority of the Bank Board agreed that caution was needed. Inflation is still above our inflation target. Core inflation is elevated. It was higher than our forecast. Price inertia, or persistence, is still a problem in our services market. It’s typical of all economies after the high inflation that there is inflation in services. So, this was the main reason why a majority of the Bank Board chose caution.

I noticed that in your presentation, in the part on the Bank Board’s assessment of the risks, you previously referred to “risks to the forecast”. Today you referred to “risks to the outlook for the fulfilment of the inflation target”. I would like to ask why you’ve made this change in the way this is communicated.

We debated this on the Bank Board. It’s a very technical question, but it’s clear that you keep a good track of this and understand it. We wanted to unify this. And we wanted to get the opinion of the Bank Board into this statement. We are assessed by the public based on the fulfilment of the inflation target, so in these statements the Bank Board will from now on focus mainly on how it sees the risks of deviations from the inflation target. If we have a new forecast, like at the next meeting, we can also continue to discuss the risks to the fulfilment of the forecast there. Overall, however, we will mostly present it in this unified way: the risks of a deviation from the inflation target – we must not allow inflation to rise again – and how the Bank Board sees it.

My second question concerns the external environment, which has shifted towards expectations of slower global economic growth since the CNB’s previous meeting and to expectations of lower interest rates of major central banks, i.e. mostly easier monetary conditions. How do you perceive this change in the external environment? Your statement suggests that, in fact, nothing much has changed in the Czech context, so could you perhaps explain why? Related to this is a question on the market outlook for Czech rates. Money market prices indicate that rates should decrease by 25 basis points at the next two meetings and that the Czech repo rate could reach 3% or even 2.75% in the second half of next year. Does this trajectory seem realistic from the current perspective of what you can see today?

Half a year ago, you would have hardly said, or bet, that the Fed would cut rates by 0.50 percentage point. So, the markets can move in any direction every six months. Our statement and its rhetoric – and you expressed it accurately – is similar to what it would have been had this not happened. We are looking at the longer run. We are looking at the monetary policy horizon, which is one and a half years ahead. We are trying to prevent inflation in the Czech Republic from rising again. That’s why the change in financial market sentiment has not affected us now.

For the future, we have no commitment on what we will do next time or what the rate will be at the end of the year or possibly next year. We will decide based on the new forecast and an assessment of the new forecast and new data. We are keeping all options open.

And we repeat that we will stop the rate reduction process at any time if it turns out that rates are not sufficiently countering any demand-pull inflation that might arise.