The Czech National Bank (CNB) held its key interest rates steady and said it would "continue to use the exchange rate as an additional instrument for easing the monetary conditions and confirmed the CNB's commitment to intervene on the FX market to weaken the koruna so that the exchange rate of the koruna against the euro is kept close to CZK 27."
Last month the CNB's board agreed after months of deliberation to start intervening in the foreign exchange market to ensure that the koruna would remain low in a move to boost economic growth by making exports competitive and push up inflation that has remained below the central bank's 2 percent midpoint target all year.
In November inflation in the Czech Republic rose to 1.1 percent from 0.9 percent in October.
"A sustained weakening of the exchange rate close to CZK 27/EUR is needed to eliminate the threat of longer-term deflation and accelerate the return of inflation towards the target amid zero interest rates," the central bank said, adding that latest data confirm the bank's message that it intends to keep this exchange rate target at least until early 2015.
In the third quarter, the Czech economy contracted by an annual 1.3 percent, the seventh consecutive quarter of shrinkage, worse than the central bank had expected.
"The October data suggest a recovery in some industrial branches amid a continuing downturn in construction and retail sales," the CNB said.
The central bank held its two-week repo rate steady at 0.05 percent, the discount rate at 0.05 percent and the Lombard rate at 0.25 percent.