Scrapping Koruna Cap Won’t Cause Swiss-Like Gains, Singer SaysKrystof Chamonikolas, Radoslav Tomek and Lenka Ponikelska
Czech policy makers will prevent koruna gains similar to those of the Swiss franc last week once they decide to scrap a program to keep the currency weak, central bank Governor Miroslav Singer said.
The Czech National Bank, which has pledged to keep the koruna weaker than 27 per euro until at least 2016, won’t mimic the Swiss National Bank’s unexpected withdrawal of its currency cap on Jan. 15 that sent the franc surging 23 percent that day, Singer said in an interview in Vienna on Wednesday.
“We envision an exit that would be more predictable and non-volatile, with the use of all the instruments we have, if needed,” Singer said during a Euromoney conference. “The Czech economy can’t afford any foreign-exchange volatility of a magnitude” similar to the Swiss-franc moves.
Singer’s comments underscore the risks the central bank will face when it ends its existing koruna policy, introduced in November 2013 to avoid deflation and boost the economy’s recovery from a recession. Czech policy makers have repeatedly said that even once the cap is scrapped they were ready to intervene to avoid excessive koruna appreciation.
The koruna slumped to its weakest in six years on Jan. 12, reaching 28.517 per euro, on speculation the central bank may shift the cap to a weaker level after data showed December inflation slowed to 0.1 percent, compared with the CNB’s 2 percent target. It has since recovered, trading at 27.929 on Wednesday by 5:15 p.m. in Prague.
“We have never ruled out and we don’t rule out, under some extreme circumstances, changing the exchange-rate floor,” Singer said. The koruna’s volatility this month “wasn’t dramatic” as it followed a period of “abnormal” stability, he said.