Koruna Slides as Czech Central Bank Maintains Intervention

The Czech koruna dropped today as the nation’s central bank maintained interest rates near zero and reiterated its commitment to intervene on the Forex market to keep the currency from excessive appreciation.

The Czech National Bank announced today:

• At the close of the meeting the Board decided unanimously to leave interest rates unchanged. The two-week repo rate remains at 0.05%, the discount rate at 0.05% and the Lombard rate at 0.25%.
• The Board also decided to continue using the exchange rate as an additional instrument for easing the monetary conditions and confirmed the CNB’s commitment to intervene on the FX market to weaken the koruna so that the exchange rate of the koruna against the euro is kept close to CZK 27.
• The Board repeated that it regards the commitment as one-sided. This means that the CNB will prevent excessive appreciation of the koruna exchange rate below CZK 27/EUR by using FX interventions, i.e. by selling koruna and buying foreign currency. On the weaker side of the CZK 27/EUR level, the CNB is allowing the exchange rate to float according to supply and demand on the FX market.

The CNB followed many other central banks in using extremely accommodative monetary policy as a measure to spur inflation. With near-zero interest rates the central bank had no room for further rate cuts and was forced to resort to a direct intervention in the exchange rate.

USD/CZK was up from 20.0246 to 20.1087 and EUR/CZK advanced from 27.5590 to 27.6980 as of 18:39 GMT today.

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