Lack of verbal intervention by Czech National Bank

Governer of Czech National Bank presented the board's statement, where the CNB appreciated the robust growth of the economy. The central bank highlighted strong Q1 15 GDP growth, a fall in the unemployment rate and a rising number of new vacancies, accelerating wage growth, and  favourable figures for industrial production and retail sales. 

Despite the solid economic performance, the CNB emphasized inflation "will merely approach the target from below at the monetary policy horizon." As a result, the CNB decided to hold the FX floor policy and reiterated that the exit would not take place before mid-2016. Moreover, the statement again contains the phrase that the bank board is "ready to move the level of the exchange rate commitment if needed." However, the probability of such a step has declined, as per the CNB's comments, says Societe Generale. 

"We were surprised that the CNB delivered no firm verbal intervention against the strong CZK (except for one slide in the Governor's presentation during the press conference, where the CZK was labelled as an antiinflationary factor). The CNB likely wanted to avoid a situation where markets would notconsider such verbal intervention as credible, given the strong economy and inflation bottoming out. However, if the CZK again appreciates closer towards the EUR/CZK 27 level, the central bank could speak up with a goal to weaken the CZK", says SocGen.