Central bank may extend low crown policy beyond 2016

The recent strengthening of the crown has led the Czech National Bank to consider extending its low crown intervention policy until 2017, according to the head of the bank’s currency and statistical section Tomáš Holub. In an interview with the business daily Hospodářské Noviny on Thursday Mr. Holub said it was the bank’s aim to continue with interventions on foreign markets for as long as necessary in order to support growth and move inflation towards the 2.0 percent target.

Photo: Matěj Skalický

The central bank launched its low crown forex intervention policy in November of 2013 selling crowns and buying euros to prevent the Czech currency strengthening beyond the set margin of 27 crowns to the euro. Within a few days the bank bought foreign currency, largely euros, to the tune of 200 billion crowns. Since then the crown has stayed below the set margin. Although the bank previously indicated that the forex interventions would cease in the second half of 2016, the recent strengthening of the Czech currency may see those plans revised.

Last Friday the central bank once again intervened against the firming crown and has now indicated that it may continue to do so for longer than originally planned. The head of the bank’s currency and statistical section Tomáš Holub also mentioned the potential use of other less conventional monetary policy instruments, saying that although the bank had not considered them to date they would remain a possibility. Hospodarske Noviny notes that such instruments could involve for example negative interest rates, though that would require a change in legislation.

The daily sounded government officials on the issue and says the bank’s policy would see support from the Cabinet. Prime Minister Bohuslav Sobotka said a prolongation of the interventions would benefit employment, economic growth and exports and Finance Minister Andrej Babiš gave the daily a similar response.

On the other hand, President Miloš Zeman, who has been a fierce critic of the said interventions, is certain to oppose the move. Mr. Zeman has said he considers the interventions a major error in judgement on the part of the central bank board and particularly the bank’s governor Miroslav Singer and made no secret of the fact that when Mr. Singer’s term in office expires next year he would select a successor who would “rectify” his mistakes.