Kubicek Says Board Is Divided On Rate Path, Staffers Flag Reduced Uncertainty Around Jan CPI

The CNB has concluded its seminar for market analysts, which involved a presentation of the new macroeconomic forecasts and a Q&A session with the audience. The seminar is normally attended by one Bank Board member, this time it was Jan Kubicek who spoke alongside senior staffers Jakub Mateju and Karel Musil.

• Jan Kubicek says that the Board is divided on the preferred trajectory of rate-cutting. Some members prefer faster cuts towards the neutral level and some prefer a more gradual process. He adds that some members mentioned that the r* rate could be higher than previously estimated. This would imply that the terminal rate of the easing cycle would also be higher.
• Kubicek cites a couple of factors for why the neutral interest rate could be higher than believed earlier: (1) an increase in public debt, (2) misguided interpretations of the past verified by reality. The CNB had earlier estimated its neutral rate to be around 3%. Kubicek notes that the central bank is still "experimenting" with the concept and may also look into distinguishing between short-term r* and long-term r*.
• CNB Monetary Department's Jakub Mateju says that would be surprised if inflation printed outside of the +2.5-3.5% Y/Y range in January as uncertainty has dissipated somewhat. The forecast is based on high-frequency price data provided by e-commerce firms, major retail chains and restaurants. Available data suggest that there wasn't any "explosion of prices" at the beginning of the year.
• His colleague Karel Musil caveats that uncertainty around the outlook for the months ahead has not entirely dissipated, with analysts waiting for the impact of the government's tax adjustments and potential repricing in February/March.
• Jan Kubicek notes that the Bank Board did not discuss specific levels of the exchange rate, but the koruna is expected to appreciate slightly this year. He says the trajectory of interest rates would look different if the koruna stabilised at the current levels. He adds that all members saw rate trajectory above staff projection.