Ex-CNB official warns of speculation when weak crown policy ends
For almost three years the country’s central bank has been intervening on the currency markets to keep the Czech crown weak. The Czech National Bank has signalled that it will end that policy quite soon. But what will happen next? One former deputy governor of the CNB believes the Czech currency will likely face “huge speculation”.
It has pumped hundreds of billions of crowns into pursuing that policy – under which the crown has hovered at around 27 to the euro – ever since.
But the central bank is now looking to take a different approach, with board members repeating a few weeks ago that the weak crown policy would probably be brought to an end in the first half of 2017.
Speaking on a debate show on Czech Television on Sunday, a former vice-governor of the CNB, Luděk Niedermayer, said the change was likely sooner rather than later.
“I think the time is drawing close. One thing is that the European economies that are important to us aren’t doing too badly. So there is no justification for a zero inflation currency policy and very low inflation. And, above all, our economy is finally doing well and there is wage pressure. I think when wages do rise, inflation will start to grow, and the Czech National Bank will receive increasing signals that it is time to change its currency policy.”
Mr. Niedermayer, who is today a member of the European Parliament, says that even when the CNB does change its policy, it will still have to play a highly active role in what could well be a turbulent period.
To date the CNB has spent CZK 592 billion crowns keeping the crown weak toward the euro under a policy that has not been without its critics. Has it been money well spent? Luděk Niedermayer says that will not become clear until the entire process has come to end.