Czech Central Banker Quashes Bets on Earlier Koruna Cap Exit

  • Rusnok sees exit from koruna cap regime in second half of 2017
  • Forward rates show investors scaling back bets on earlier exit

Czech central bank Governor Jiri Rusnok is standing by the regulator’s outlook for scrapping its unconventional monetary stimulus in the middle of next year or later, damping speculation that it might happen sooner.

The Czech National Bank’s forecast suggests the three-year-old currency limit could end “sometime in the second half” of 2017, Rusnok told reporters on Tuesday, adding that he personally sees the policy change more likely after “summer holidays” next year. The governor also said the central bank made no statements justifying increased bets on an earlier exit that recently appeared in the derivatives market.

“The Czech economy still deserves relaxed monetary conditions; we have no relevant reason to hasten the exit from the exchange-rate commitment or change it substantially,” Rusnok said in the city of Ostrava. “If the forecast deviated from what it says now,” the central bank “would obviously have to consider potentially postponing.”

The central bank in Prague has yet to discuss and decide how to end its stimulus, which echoes efforts by its global counterparts to boost price growth. Rate setters have repeatedly said they will only scrap the unconventional policy once they’re certain it won’t be needed again. Derivatives used to speculate on the future koruna rate have recently signaled increased bets that the bank could end the limit before mid-2017.

The governor’s statement lifted forward contracts fixing the koruna exchange rate in 12 months to 26.77 per euro on Tuesday after the securities tumbled in the previous five days to 26.70, the strongest level in a year.

“I didn’t quite understand where that speculation about some potential earlier
exit came from,” Rusnok said. “I haven’t seen any reason for that in my own or other board members’ comments.”

For a QuickTake explainer on Czech monetary policy, click here

While the central bank bought an equivalent of 307 million euros ($345 million) in July, the smallest amount in four months, ING Groep NV’s unit in Prague estimates that the intervention volume rose to about 1.1 billion euros in August.

“Rusnok’s comments represent a verbal intervention designed to maintain relaxed monetary conditions,” Marek Drimal, senior economist at Komercni Banka AS in Prague, said by e-mail. “Inflows of speculative capital triggered koruna appreciation on the forwards market” and “the CNB had to, according to our estimates, significantly increase its intervention activity.”

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