Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
At its last meeting on May 5th, central bank of the Czech Republic left its key interest rates unchanged, as widely expected, and confirmed its commitment to using the exchange rate as an additional tool for easing monetary conditions and to intervene on the foreign exchange market if needed to weaken the koruna.
The Czech National Bank has maintained a cap on the exchange rate of the koruna to the euro at 27 since November 2013. Minutes revealed that the board members are now ready to support a hike in the EUR-CZK target level from 27.00 (if conditions so demand).
"Until a year ago, we forecast that CNB would hike the EUR-CZK floor to 29.00; but, we removed this forecast because CNB appeared unwilling to take on the strong political opposition which this would require. We find it interesting that such a move is back on the agenda." notes Commerzbank in a report.
Following significant cuts to GDP and inflation forecasts in its Q2 Inflation Report, CNB published dovish minutes from last month’s rate meeting which revealed that there is serious discussion about negative interest rates. The board had concluded at the April meeting that negative rates are not very suitable for combating deflation and that CNB could consider hiking the EUR-CZK floor instead.
"Our base-case for now remains that CNB will cut its discount and repo rates to negative by Q3, but will leave the current 27.00 EUR-CZK floor intact. The negative rate will help defend the EUR-CZK floor, which could otherwise come under pressure." said Commerzbank.
