Thursday, November 7, 2013

Czech holds rate but to intervene to weaken koruna

    The Czech Republic's central bank maintained its benchmark two-week repo rate at 0.05 percent but will "start using the exchange rate as an additional instrument for easing the monetary conditions."
    The Czech National Bank (CNB) said it "will intervene on the foreign exchange market to weaken the koruna so that the exchange rate against the euro is close to CZK 27."
    Last CNB's board has been debating currency intervention for months and last month it finally decided that it was "ready to use the exchange rate if further monetary policy easing becomes necessary," citing the risk that inflation may decline further.
    The koruna has been largely steady this year, ending 2012 at 25.11 to the euro and quoted at 25.8 earlier today. But following the bank's decision, the koruna quickly fell some 4 percent to trade at close to 26.9 to the euro.
    Inflation in the Czech Republic fell to 1.0 percent in September from 1.3 percent, at the lower limit of the the CNB's target of 2.0 percent, plus/minus one percentage point.

     The Czech economy has started to turn around, with Gross Domestic Product rising by 0.6 percent from the first quarter. However,  on an annual basis, the economy still contracted by 1.3 percent, the sixth consecutive quarter of a shrinking economy.


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