Thursday, November 6, 2014

Czech maintains rates, FX commitment, as expected

    The central bank of the Czech Republic maintained its benchmark two-week repo rate at 0.05 percent, as widely expected, along with its commitment to intervene in foreign exchange markets if necessary to prevent the koruna currency from rising above 27 to the euro.
   The Czech National Bank (CNB), which has been using the exchange rate as an additional tool to ease monetary conditions since November 2013 in July pushed back the timeframe for exiting its exchange rate commitment to at least 2016.
   Last month in Washington, CNB Govenor Miroslav Singer, said in an interview that the threat of deflation or a very long period of inflation in the Czech Republic had diminished but he still intends to maintain the weak koruna policy at least into the start of 2016.
    Headline inflation rose to 0.7 percent in September from 0.6 percent in August, the third consecutive month of accelerating inflation after reaching zero percent in June. The Czech Gross Domestic Product expanded by 0.3 percent in the second quarter from the first quarter for annual growth of 2.5 percent, down from 2.9 percent in the first quarter.
    The koruna was quoted at 27.74 to the euro today.

   The CNB issued the following statement:
"The CNB Bank Board decided at its meeting today to keep interest rates unchanged. The two-week repo rate was maintained at 0.05%, the discount rate at 0.05% and the Lombard rate at 0.25%.

The CNB Bank Board also decided to continue using the exchange rate as an additional instrument for easing the monetary conditions and confirmed the CNB’s commitment to intervene on the foreign exchange market if needed to weaken the koruna so that the exchange rate of the koruna against the euro is kept close to CZK 27/EUR.
The CNB Bank Board repeated that it regards the commitment as one-sided. This means that the CNB will prevent excessive appreciation of the koruna below CZK 27/EUR by intervening on the foreign exchange market, i.e. by selling koruna and buying foreign currency. On the weaker side of the CZK 27 level, the CNB is allowing the koruna exchange rate to float according to supply and demand on the foreign exchange market."


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