Czech Central Bank Ends CZK/EUR Peg

The Czech central bank on Thursday ended the koruna’s peg to the euro that was in place since November 2013, thus allowing the currency to appreciate.

The move was being speculated in foreign exchange markets with huge bets being placed on an appreciation of the koruna, after the 27 CZK/EUR peg expired in March.

The Czech National Bank board took the decision following an extraordinary policy meeting on Thursday. The bank did not discuss interest rates.

“The discontinuation of the use of the exchange rate as an additional monetary policy instrument means that the koruna exchange rate will move according to supply and demand on the foreign exchange market. As a result, it may fluctuate in either direction in the short term,” the bank said in a statement.

“The CNB stands ready to use its instruments to mitigate potential excessive exchange rate fluctuations if needed.”

The 27 CZK/EUR peg was implemented in November 2013 to keep the koruna weaker against the euro.

In the policy session on March 30, the bank said sustainable fulfilment of the 2 percent inflation target following the return to the conventional monetary policy regime is crucial for the timing of the exit from the exchange rate commitment.

From a longer-term perspective, the koruna is likely to revert to a gradual appreciation trend if the Czech economy continues to perform well, the bank said on Thursday.

The bank also said that a return to the exchange rate commitment is highly unlikely in the near future, as inflation is above the CNB’s 2 percent target amid solid growth of the Czech economy, rising wages and related robust domestic and overall inflation pressures.

CNB Governor Jiri Rusnok is set to hold a press conference at 2:15 p.m. local time.

by RTT Staff Writer

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