The Czech National Bank (CNB) has kept a cap on the exchange rate of the koruna since November 2013 after cutting the benchmark two-week repo rate to its current level of 0.05 percent in November 2012.
The CNB has often said that it will not end the use of the exchange rate as a monetary policy instruments before 2017 and last month the new governor, Jiri Rusnok, said the board still expects to remove the cap on the koruna by the middle of next year.
Inflation in the Czech Republic rose to 0.6 percent in August, up from 0.5 percent in July, with the bank forecasting it rising to 2.4 percent by the end of 2017.
Gross Domestic Product expanded by 2.6 percent in the second quarter of this year, down from 3.0 percent in the first quarter and is seen averaging 2.4 percent this year. In 2017 growth is seen averaging 3.0 percent, down from 4.6 percent in 2015.
The koruna was trading at 27.02 to the euro today compared with 27.05 at the start of the year.
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.
More information on the CNB’s exchange rate commitment can be found on the CNB website: