Czech Central Bank Governor on Rates, Inflation, and Bitcoin (with Francine Lacqua)

Impact of ECB rate hike on Czech Republic?

Francine Lacqua

Ales Michl

ECB decision won't affect our next step. Our key rate has been 3.50 for more than a year; we haven't cut rates. The real problem is too much money in the economy from years of zero rates and fiscal deficits, pushing core inflation higher.

We have to stay hawkish forever.

Inflationary pressure from oil prices given Middle East uncertainty?

Francine Lacqua

Ales Michl

Oil tends to increase inflation, bringing more spending and price pressures.

Could that be short-lived if resolved quickly?

Francine Lacqua

Ales Michl

With cost inflation, yes. But we reduced inflation from 20% to around 2%. Current inflation is 2.1%, core is 2.9%. Policy is already tight, but we have to decide whether to switch to a tighter policy.

Ready to support a rate increase next week?

Francine Lacqua

Ales Michl

A June move is now a real possibility. The case for a rate hike has strengthened. I am forever hawkish.

What have you learned from the Bitcoin test fund?

Francine Lacqua

Ales Michl

Central bank and Bitcoin is a strange combination, but we must innovate and understand the future. It's a $1 million test, not a revolution. I see only two possible outcomes for Bitcoin: very high value or zero.

We will run the test for two years.

What portion of reserves could you imagine holding in Bitcoin in the future?

Francine Lacqua

Ales Michl

We will decide after the test. I expect a shakeout in crypto, with creative destruction, but strong technologies will survive.

What has the new reserve management approach (increasing equities and gold) delivered?

Francine Lacqua

Ales Michl

Investment horizon is infinite. Increased equity allocation from 0% to 26% and gold from almost 0% to 6.5%. Last year return was 10%. So far so good, but one year is not enough to judge.

Strategy for US equities, especially with changes from SpaceX?

Francine Lacqua

Ales Michl

We do not focus on short-term. We stay with our long-term strategy. The portfolio is for the next 50 years.

Do you worry about valuations in AI and tech in the US?

Francine Lacqua

Ales Michl

I am not focusing on short-term bubbles. It's a long-term portfolio.

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