Transcript of the questions and answers from the press conference

I would like to ask about the new forecast, which lowers the outlook for economic growth and inflation, shifting as it were in an anti-inflationary direction. However, at the same time, it raises the interest rate outlook and strengthens the outlook for the koruna. Could you please explain how these two things are related and why interest rates should have a higher trajectory than originally expected?

The fundamental logic is that we don’t want to repeat the mistake of the years before Covid, when real interest rates were negative for over a decade, meaning that people lost money in real terms if they saved. So, we mainly want to keep interest rates above inflation for as long as possible – for a long time – to encourage saving. One reason for this is that we want to prevent an excessive expansion of the property market, excessive lending and inflation persistence in the services sector. We also want to see a decline in services inflation. The January inflation figure is quite favourable as regards services inflation, but we want to see further confirmation of this. That’s the main reason why we are being very cautious and why today’s rate cut is mostly hawkish – we continue to highlight future inflationary risks.

If I may follow up regarding the risks to the real economy, which clearly will not grow as fast as previously expected. How do you assess this, and how do you take it into account in your considerations?

Our baseline forecast is that the economy will grow by around 2%. This will be slightly higher than last year, but the growth will be driven mainly by household consumption and government debt – both of which are inflationary and pose inflationary risks for the future. That’s why the Bank Board must be very cautious in further reducing interest rates.

How much time did the Bank Board spend discussing the risk of trade wars and with what impacts on the Czech economy and the CNB’s monetary policy? With what sign? And what is the possible extent of these impacts, given that, of course, we still don’t know exactly what will happen?

We already had a discussion on trade wars yesterday, as our monetary policy meetings are preceded a day earlier by a briefing with key departments of the bank regarding future developments. We hold this brainstorming session on the day before the main meeting. We discussed the issue there, but we agreed to wait until we have a clear picture of all the specific measures before making key conclusions and key analyses. We will summarise and analyse the measures and respond accordingly.

I would like to ask whether you discussed your idea of purchasing Bitcoin into the CNB’s reserves.

We didn’t discuss it.

Does that mean we cannot say if an analysis will be conducted, or when its conclusions might be available?

At the Bank Board meeting last week, we approved a proposal to conduct an analysis to assess the possibility of investing in another asset class. Within our international reserves strategy, we aim to enhance the diversification of our investments. Once the analysis is ready, it will be presented to the Bank Board, which will then decide on the next steps. We will provide information in our regular quarterly reports – since the Czech National Bank is one of the most transparent central banks in the world, we regularly disclose where we invest our funds – or in the Annual Report.

When can we expect the analysis to be completed? Are we talking about this quarter, or could it perhaps take a year? I’m asking because the plan sounded more specific than it later seemed after it was discussed by the Bank Board. When could the expansion of assets – including potentially Bitcoin – be implemented, and in what scope? Also, what were the reactions of the other board members to the idea of expanding the range of reserve assets to include Bitcoin?

The plan has been the same from the beginning: to present the Bank Board with options for which asset classes we could invest in. There was no reaction, as most board members simply said they would wait for the results of the analysis before making a decision. That is all.

Could you clarify the timeframe for when the analysis could be completed?

No specific timeframe has been set. We want a high-quality analysis.

Your statement says that the forecast implies a slight reduction in interest rates in the first half of the year, followed by broadly stable rates in the second half. You mentioned that rates might remain restrictive for longer than the forecast implies. The forecast now implies that rates should fall to 3.25%, or even 3% this year. Could you clarify whether we should interpret this as meaning that rates will not fall as much and will instead stabilise at a higher level than 3% or 3.25%? Or do you mean that theoretically we might still reach those levels, but later than in the first half of the year?

You should interpret it as meaning that I would prefer it if longer-term interest rates did not decline very much. The most likely scenario at the moment is that interest rates will be set slightly higher than the forecast expects. Nothing more, nothing less. However, at the next meeting, we will reassess all the risks, uncertainties, pros and cons to ensure that the Czech Republic continues to maintain low inflation.