Monetary Department Chief Discusses Latest Research Into R*

Monetary Department Director Petr Kral turns to the discussion of r*, with the Czech central bank investigating the potential increase in the neutral interest rate.

• Kral says that global factors such as the balance between savings and investments, higher government spending and a rise in public debt, and partial deglobalisation.
• In Czechia, r* may have increased due to higher fiscal deficits, higher riskiness, slower real convergence and appreciation of REReq, and spillover of higher r* from abroad.
• The CNB used three estimation methods in their research into r*. Kral says that the results of analyses generally do not call into question the current level of 1% (which translates into a monetary policy neutral interest rate of 3%).
• However, one method showed that "there was a gradual increase in the natural rate of interest slightly above the level assumed in the baseline scenario of the forecast."
• Meanwhile, another estimation method showed that r* "has been heading towards 1% only in recent years and it is now heading slightly above that level."
• The staff prepared an alternative scenario of a higher natural rate of interest. Under this assumption, domestic interest rates are maintained at a slightly higher level than in the baseline scenario.