Thursday, March 26, 2015

Czech maintain rate, FX commitment, as expected

    The Czech National Bank (CNB) maintained its benchmark two-week repo rate at 0.05 percent and reiterated its commitment to intervene in foreign exchange market to keep the koruna currency below 27 to the euro, a decision that was largely expected.
    The central bank for the Czech Republic,  which has been using the exchange rate as an additional tool to ease monetary conditions since November 2013, has seen the koruna firm since mid-January with financial markets seen testing the bank's resolve to maintain its exchange rate cap.
    Last week the koruna hit 27.16 to the euro, the strongest level since November 2013, but since then it has eased slightly to trade around 27.4, still slightly firmer than 27.70 at the start of the year.
    The central bank has on several occasions extended the time frame for maintaining its cap on the koruna's exchange rate, with the cap currently in place until at least the second half of 2016.
    In its February inflation report, the CNB said it expects inflation to be zero or slightly negative this year before rising to its 2.0 percent target in 2016.
    Consumer price inflation was steady at 0.1 percent in February for the third month in a row.

    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.
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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