Czech central bank holds rates, stands firm on currency

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If you missed it among the Bank of England excitement, the Czech central bank has also stayed on hold today, and held firm on its policy of limiting strength in the koruna.

It said it…

confirmed the 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.

A recap for those of you who are not Central European currency hipsters: The Czech National Bank imposed a Swiss-style lower limit on the euro-koruna exchange rate in 2013. It has committed to prevent the euro from falling under CZK27, in the hope that a somewhat weaker currency will prevent the Czech economy from undue deflationary pressure.

No doubt keen to avoid a Swiss-style blow-up (on a smaller scale, but still) it has laid the groundwork for a so-called Czexit, with presentations on how and when it might stand back – a move penciled in for mid-2017.

A rapid rise in inflation in the country means the central bank may have good cause to bring forward its plans to scrap the exchange-rate limit. Clearly, though, it’s hard to give too many warnings on timing, as that will just lure in speculators. It’s clearly toeing the line today.

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