Czech National Bank

November 6, 2014

The Czech central bank extended its exchange rate policy past end-2015 and retained a virtual zero interest rate policy after this month’s policy meeting.  The two-week repo rate has been at 0.05% for the past two years.  A year ago this month when more stimulus was needed but room to cut interest rates no longer existed, officials added a one-sided exchange rate policy to their tool chest.  With intervention, they are ensuring that the koruna does not strengthen past 27 per euro but will welcome and not counter depreciation from that level.  The 27/euro target specified in November 2013 has not been modified during the ensuing year but today’s statement promises “not to discontinue the use of the exchange rate as a monetary policy instrument before 2016.”  Since the ECB Governing Council is embarked on a program that is expected to generate further depreciation of the euro against the dollar, the koruna will share fully or perhaps more than fully in whatever euro decline that results.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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