CNB has launched frontal attack against strong koruna

One of the biggest problems that Czech exporters have to face is the constantly strengthening Czech currency which makes Czech goods more expensive and therefore less competitive. Earlier this month, the Czech National Bank and the government announced that they were joining forces to fight against an overly strong Czech crown and its further strengthening due to expected massive privatisation revenues. And the Czech National Bank was quick to take an action.

In a surprise move, the Czech National Bank has used all the usual monetary policy tools on Monday to launch a frontal attack against the excessively strong currency. After a verbal intervention which failed to achieve the desired effect, it took brokers by surprise by announcing an extraordinary meeting of the board of governors to discuss monetary policy changes. The Czech central bank has also lowered all key interest rates and confirmed an intervention on the foreign exchange market.

The interest rates were cut to historic lows for the second time in less than two months. All the interest rates were cut by 25 percentage points, so that the two-week repo rate stands at 4.5 percent, the discount rate at 3.5 percent and the Lombard rate at 5.5 percent.

Analysts say the crown's strength is mainly the result of the knock-on effect of high levels of foreign direct investment in recent years which is expected to continue especially due to the ongoing last stage of the privatisation of state assets.

Considering the fact that only about a half of Czech exporters complain about the strong currency, Martin Tlapa of CzechTrade is convinced that uncertainty on the foreign exchange market is much worse for them than a strong crown: