CNB to extend EUR/CZK floor beyond late 2016

The situation surrounding the EUR-CZK floor is attracting increasing interest every day, which is not necessarily a good thing for CNB. The credibility of the floor mechanism is being debated actively, with EUR-CZK making closer approaches to the 27.00 level.

"The CenBank could be facing off speculative attack, and wants to make things easier for itself by not disclosing too many details", says Commerzbank. 

Several key figures verbally intervened yesterday, CNB chief economist Holub stated that the bank could decide to extend the floor beyond the late-2016 timeframe.

Then, FinMin Babis and PM Sobotka, who are basically sceptics of exchange rate intervention, still joined forces with the CB, expressing support for the floor and extension of timeframe, if required. 

Finally, the CB and the finance ministry have been discussing the use of negative interest rates, which in the case of the Czech Republic, requires legislative change. More about the stance of policymakers during CNB's next board meeting can be known on 6 Aug.

"For the time being, policymakers are discussing options and showing unity to effectively sabre rattle to speculators; CNB muddling through with the floor without major new policies, and exiting during H2 2016, perhaps a bit sooner than many expect", added Commerzbank.