CNB keeps faith in intervention as policy held steady

There is a floor that has come under heavy assault in recent times. It is maintained by Czech National Bank (CNB) between Euro and Czech koruna at 27 Koruna per Euro.

The Czech National Bank (CNB) has left interest rates on hold at 0.05% as expected, which leaves intervention as the tool to defend its peg.

Moreover, central bank has vowed to use exchange rate as additional instrument for easing monetary policy.

This means central bank is vowing to use unlimited intervention to defend the peg, which will result in heavy printing/selling of Koruna.

With peg clearly under attack expect foreign exchange reserve of CNB to skyrocket.

As long as Euro fails to gain strength and moves to upward trajectory, the pressure is unlikely to ease on the peg.

Many investors are reported to be going long in Koruna while funding from Euro as gain could be substantial if the peg is removed similar to what Swiss National Bank (SNB) was forced to do with EUR/CHF peg in January, 2015.

Euro is currently trading at 27.02 against Koruna.