The Czech National Bank (CNB) has maintained a cap on the exchange rate of the koruna to the euro at 27 since November 2013 following a cut to its benchmark two-week repo rate to the current level of 0.05 percent in November 2012.
At its last meeting on March 31, the board of the CNB extended its commitment to using the exchange rate as an additional monetary tool to mid-2017 as the outlook had turned "slightly anti-inflationary."
In recent months, the CNB board has also been discussing the use of negative interest rates to curb possible inflow of capital following the exit of its weak crown policy.
Inflation in the Czech Republic eased to 0.3 percent in March from 0.5 percent in February. The CNB expects inflation to hits its 2.0 percent target in the first half of 2017.
The Czech National Bank 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.
This exchange rate commitment is one-sided. This means the CNB will not allow the koruna to appreciate to levels it would no longer be possible to interpret as “close to CZK 27/EUR”. The CNB prevents such appreciation by means of automatic and potentially unlimited interventions, i.e. by selling koruna and buying foreign currency. If the exchange rate departs from CZK 27/EUR on the weaker side, the CNB allows the koruna exchange rate to move according to supply and demand on the foreign exchange market."