Czech National Bank: No Changes

February 6, 2014

A statement from Czech monetary officials reaffirms the existing ultra-loose monetary policy.  A virtual zero interest rate policy has been in place since a 20-basis point cut of the two-week repo rate to 0.05% in November 2012.  There were also cuts of 25 bps each in June and September of that year.  In November 2013, officials introduced an exchange rate policy capping the koruna at 27 per euro through unlimited intervention as needed.  This tool for easing monetary conditions after interest rates are nominally at zero is analogous to the Swiss policy.  It’s a one-side currency target.  Currency intervention will be used only to prevent strengthening past the target but not in the event that the koruna weakens, that is moves to 27.5/EUR or beyond.  The currency policy is intended to be in place for a long time, namely until 2015 at the earliest, and longer if that’s what is necessary to reach a point where officials become certain about a significantly lessened risk of sub-2% inflation and believe that recovery is firmly rooted and that deflation is no longer a danger.  Officials plan to discontinue the threat of intervention before ending ZIRP.

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



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