Czech National Bank governor dampens speculation about earlier Koruna cap exit

In a statement made to the media on Tuesday Czech National Bank (CNB) governor Jiri Rusnok highlighted various possible scenarios which could occur and what CNB's response would be to each of these. Rusnok reiterated the regulator’s outlook for scrapping its unconventional monetary stimulus in the middle of next year or later, damping speculation that it might happen sooner.

“The Czech economy still deserves relaxed monetary conditions; we have no relevant reason to hasten the exit from the exchange-rate commitment or change it substantially,” Rusnok said in the city of Ostrava.

In November 2013, the CNB decided to use the koruna exchange rate as an additional instrument for easing the monetary conditions. Since then, the Bank Board has repeatedly confirmed the validity of this exchange rate commitment. At its most recent meeting on 4 August 2016, the Bank Board stated again that the CNB would not discontinue the use of the exchange rate as a monetary policy instrument before 2017.

Rusnok also reiterated recent guidance that inflation was following the bank's projections and would hit the target 2 percent around mid-2017.

"Our scenario is that inflation will undershoot CNB's forecasts: we forecast 1.1% inflation for 2017 vs. CNB's 2.1%. On this view, we expect CNB to end up extending the framework at least until end-2017." said Commerzbank in a report.