Good morning to all our regular viewers of the Czech Banking Association’s “Economic Association” program with Miroslav Zámečník. Good morning.

Hello.

It’s been a while since we’ve seen each other.

Well, I’d almost forgotten.

And a lot has been going on. But actually, we’ll pick right up where we left off. That means Donald Trump. He’s actually brought us up to speed on the long-running story of the strait that the economy has been navigating—and which has turned into something of an economic mess for us. And that’s the Strait of Hormuz. This morning, Donald Trump announced for the thirtieth time that a deal has been reached.

Wasn’t that the thirty-first time?

Well, maybe even the thirty-first time. An agreement with the Islamic Republic of Iran has now been reached. Congratulations to everyone. Ships of the world, start your engines—let the oil flow. But it looks like the markets still believe it.

Well, we’ll see. It’s supposed to be signed on Friday; we’ll see if anyone loses their cool a little bit before then. But to be honest, this is probably the most promising declaration of victory we’ve seen so far. And it’s not as if the global economy didn’t need this, because the clock was already ticking, and we were approaching the point where there would be a truly painful collapse in demand—and not just in certain countries where it had already happened long before. Bangladesh, for example, but it’s going to hurt the developed countries, too.

Perhaps let’s recall what 2025 actually meant—that is, when things were flowing smoothly. 140 ships a day, 20 percent of the world’s oil, 45 percent of the world’s sulfur. That means, for example, a problem with synthetic fertilizers. And after all, those agricultural nations were supposed to be using fertilizer. How big of a mess will this be, even if they actually manage to restore operations as Donald Trump promises?

Well, the question is what the fertilizer markets will look like in terms of price—now, if this succeeds, once things stabilize. One thing is certain: the damage has likely already been done in the Southern Hemisphere. And based on what I’ve researched on this topic—because we’re constantly learning from the crises that have been generated, not because of, but in the presence of Donald Trump—there’s one interesting thing. The typical reaction is to restrict supply—specifically, fertilizer supply during the growing cycle—because you’re uncertain whether those costs will be recouped in the commodity price. So if fertilizer is expensive and you’re unsure whether you’ll be able to pass those fertilizer costs on to the price of the crop after harvest, you reduce the input, you simply start cutting back on inputs because you don’t know what the output price will be. And that has apparently already happened in some countries.

Will the citizens of the Czech Republic receive a gift for Donald Trump’s 80th birthday as a result of this very agreement?

Now that would be a gift. Something like the reopening of the Strait of Hormuz, which would last longer, and eventually lead to some kind of agreement that would, let’s say, be better than what was agreed upon under Obama. It would truly give the world hope that Iran would not become a nuclear power, because that would trigger a domino effect and global security would certainly not improve as a result. That would be a nice gift. And it would be a nice gift not only for the citizens of the Czech Republic.

Well, I’m talking about the citizens of the Czech Republic. I assume they’re the ones watching us most of all. But let’s get back to home. Let’s look at the last two months and what’s been happening in the Czech Republic, because things here have been driven primarily by the Ministry of Finance. We probably can’t skip the topic of government bonds. Alena Schillerová, as Minister of Finance, must be thrilled, because she expected 20 billion and, according to the latest data, received over 63 billion crowns. However, some economists point out that, in the long run, this might not be such good news after all. What’s the story?

Well, the question is whether, in terms of cost, this is the most efficient way to place the bonds. I’m almost convinced that it isn’t. But from a political and PR standpoint, it’s obviously a huge success for the Ministry of Finance and for the minister personally, because the public is signaling—by oversubscribing—that the appetite is clearly greater than this volume, and this will undoubtedly continue. It’s simply a matter of how much you want to have on the books. And then it will start to depend on how costs evolve. The second point is that this will, of course, also influence banks’ behavior regarding deposit rates in some way. And I’m curious to see what that will mean. At this volume, it’s not yet particularly significant, because let’s consider that in current accounts alone as of the end of April—we don’t have more recent data yet—the figure was 1,280 billion. With all due respect to this bond subscription, that’s a negligible amount.

Well, since you mentioned banks, perhaps let’s fast-forward to early June and another tweet from the finance minister, because the government was presenting new measures regarding voluntary retirement savings. I responded to those banks. Alena Schillerová tweeted some information, and—as is her custom—she included a nice image with lots of numbers and lots of small print. But I was responding to the banks, because some economists—and you among them— actually didn’t fully agree with what Alena Schillerová was saying—among other things, that this money is for the people, not the banks; that it’s about reducing fees; and that the banks will manage. But you held the opposite view.

Well, no—let me interpret my own words precisely. I was pointing out that, from a fee perspective, this intervention is such that it will make it impossible to purchase certain assets. That’s something everyone has to consider for themselves, including the regulator. Whether this is in the best interest of the participants in those pension funds—I’m convinced it isn’t. In other words, the fees were cut too low. As an economist, I wouldn’t dispute that there was room for adjustment. It’s just that when you look at qualified investor funds, which invest in various types of assets—and let’s say there are qualified investor funds here with a total volume of one trillion crowns, which is more than the entire pension system has amassed in over thirty years of existence. And these qualified investor funds are required by law to manage the money of wealthy people who are well-informed, aware of the risks, and so on. The key point is that they charge fees that are completely different from, say, 0.50. Yet these wealthy people still invest with them. Why? Because they are drawn by the prospect of high returns—a high appreciation of their invested capital. And the key point is this: whether we like it or not, as lawmakers, should we allow citizens who cannot scrape together one million crowns in initial simply the subscription fee for a qualified investor fund—to access these structures through pension funds and effectively have the same investment access as wealthy people do, as well as the same exposure to the investments that interest the wealthy—the wealthiest people in the country. Well, that’s the whole debate. Some types of investments are permitted through alternative investment funds and alternative pension participation funds, but others aren’t—I don’t want to get into the details—but basically, you have a life-cycle fund that allows for a 10% allocation to alternative participation funds. But, for example, we also have conservative funds and balanced funds. People can stay in those if they want, but it would be good to offer them something with higher returns—even after accounting for all fees—than what government bonds provide. Because you can book government bonds very cheaply, but a qualified investor fund that invests in retirement homes— and no one disputes that we need to increase capacity—you can no longer invest in it because you won’t fit within the fee limit, since the way our fee structure is designed, it includes all payments to third parties. So you can’t buy a share in a qualified investor fund because you won’t meet the fee cap if your total fee is capped at 0.50. And this isn’t some defense of the banks—it’s complete nonsense, excuse my language—it’s just plain common sense. Someone here regulated too zealously and didn’t realize what they were actually missing out on. Or take infrastructure—infrastructure funds. The cheapest infrastructure ETF, the largest on the planet, has a fee of 0.39 percent. Well, you won’t qualify for that one either.

Well, let’s move on.

Or rather, you’d have to breathe the air and drink the water, but under certain circumstances, it would be possible. Back then, those fees were pretty steep. I’m not saying something substantial shouldn’t have been done about it, but I’d go for it. I’d look at what the standard market rate is—even internationally—for certain types of assets that I want Czechs to have the opportunity to invest in. I’ve already talked about those FKIs. Another area is infrastructure funds, but we should have Czech infrastructure funds, because as you get closer to that payout date—when you have to decide between an annuity or a lump-sum payment—you need to manage the koruna risk. Right? So you need an infrastructure fund that buys infrastructure bonds. Once again, the government has set a lofty goal of channeling 10 percent of public investments through PPP structures. It’s grappling with the complex problem of how to finance them with long-term Czech funds. Well, at 0.5, my friends, that’s going to be quite difficult.

On our show, through Miroslav Zámečník, we discuss—or rather, react to—the most significant recent developments on the global and Czech economic scenes. So I can hardly overlook the Governor of the Czech National Bank and some of his statements from the past month. Aleš Michl appeared on a podcast and said two sentences there that really resonated. The first was: “I’m not here to make apartments cheaper or to solve housing policy. Our only goal is low inflation. Period.” It’s probably perfectly fine to agree with that, because the Governor of the Czech National Bank is indeed not there to make apartments cheaper.

Well, no doubt about it—how would he even go about doing that?

Well, let’s just recall two basic current figures: the current inflation rate and the current mortgage interest rate. That way, we’ll have a rough idea of what we’re talking about. The second tweet—or rather, the second quote—was perhaps far more interesting for the economic world. I wanted to highlight both: “We’ll be that tough. I’ll gladly crush the economy—it won’t bother me at all. We’ll do everything we can to keep inflation low.” Can crushing the economy—especially when done by the governor of the Czech National Bank—keep inflation low? And let me remind you again: inflation is currently above 2 percent.

I wouldn’t use that phrase. Furthermore, I wouldn’t even comment on it much. It’s evident that the governor is somewhat associated with Andrej Babiš, since he was his advisor. Then, in the past, he repeatedly failed to vote for rate hikes at a time when inflation was in the double digits. So these are probably the kinds of things that call for stronger reassurance that his commitment to a low-inflation policy is genuine and beyond question. If I were to advise him, I probably wouldn’t, but I understand quite well what he meant to say. He wanted to distance himself somewhat from Andrej Babiš and confirm that he is simply aware of the Czech National Bank’s core mandate.

Perhaps, just to wrap things up, I’ll take advantage of the fact that you’re here and that I have this 4.6 percent figure—which is the mortgage interest rate that’s slowly rising. What can we expect from this?

Well, no, it’s all connected—everything is connected to everything else, as Joseph Vissarionovich would say.

Especially in the economy, right.

But it’s true that the long end of the yield curve is trending upward, and the interbank market—when you buy a benchmark rate for a three-year or five-year interest rate swap, or in our case, a ten-year swap at most—has also been rising. So those benchmark market rates—basically, how much it costs to buy a fixed rate for x years—are pretty clear. And that means there will be room for rate cuts here once, among other things, the world realizes that the policies of Donald Trump and his nominees at the Fed are aimed at combating inflation—and that they simply don’t need to worry that the money or bonds held by investors are in any way at risk—and we’re just going with the flow here; neither Michl nor anyone else on the Bank Board is exempt from this at all—this is simply how the market works. We’re in a certain position; we have koruna-denominated bonds and some liquidity. There’s always a premium compared to bonds from, say, the eurozone. But that’s simply how we wanted it, and it has its advantages. We can talk later about how it works in the eurozone and why Czechs have the euro. But this is simply one thing we have to factor in, and there’s no need to get upset. Here’s a little tidbit to wrap things up. If, by chance, calls to make mortgages more affordable by lowering interest rates were heeded, first of all, the market might not necessarily follow what some politician wants. But the second point is, even if—for the sake of argument—it were to be reflected in those rates. In other words, if we were to move toward lower rates through the central bank’s monetary policy, what would happen? Demand for mortgages would rise even further. Would mortgages be cheaper, and would apartments be cheaper, Mr. Kozlíček? Well, our empirical experience tells us that the opposite would be true. In other words, we’d be just like Professor Zelí, who didn’t want a discount for nothing.

That’s all from Miroslav Zámečník in today’s episode, and I’d like to thank him for that closing remark as well. Well, see you in a month.

Ekonomické asociace ČBA (8. díl): Hormuzský průliv a dluhopisy