Czech National Bank extends ‘hard’ FX commitment to defend EUR/CZK floor

The Czech National Bank left its key interest rate unchanged on Thursday and confirmed its cap on the koruna exchange rate at around 27 per euro in line with economists' expectations. The CNB has decided to continue intervening against the Czech crown to keep the exchange rate at around 27 crowns per euro, the bank’s spokesman Marek Zeman said after a meeting of the bank board on Thursday.

A noticeable change was seen with the so-called ‘hard’ FX commitment i.e. the time for which CNB “guarantees” to use the FX rate as a monetary policy tool. The Bank Board “states that the CNB will not discontinue the use of the exchange rate as a monetary policy instrument before 2017 Q2”.

Till now, CNB has defined its commitment in the sense of “no sooner than 2017”. The change in wording signifies the fact that any consideration of an early exist – right at the beginning of the 2017 year – were unsubstantiated.

The soft FX commitment, which suggests a probable exit date remains unchanged this time round again. Governor Rusnok also said that thanks to the compliance of current macro developments with the forecast there are no grounds to postpone the soft FX commitment (mid of 2017).

"We still expect the exit to be associated with a certain degree of surprise and the exact date not to be pre-announced with respect to minimizing EUR/CZK speculations. We observe the third quarter as an appropriate time to terminate exchange rate interventions (if the ECB policy permits that)." said KBC markets in a report.