Czech Koruna Cap Guidance to Become More Ambiguous as Exit Nears

The Czech central bank warned investors that its guidance over its commitment to cap gains on the country’s currency will become more vague as the end of the intervention regime approaches.

While policy makers have intimated that they’re likely to scrap the 27-per-euro currency limit around the middle of 2017, the central bank’s formal pledge to maintain the cap only applies until the end of this year, Vice Governor Mojmir Hampl said Friday. Tomas Holub, the chief economist at the Czech National Bank, said the rate-setting board could “theoretically” let the koruna float as soon as January.

The comments underscore a shift from the central bank, which took a step closer this week toward preparing investors, exporters and consumers for the end of its 2 1/2-year effort to halt koruna appreciation. On Thursday, the bank moved moved forward its forecast for when price growth may reach target, the first such step since 2014. Rate setters “didn’t feel any need whatsoever” to prolong the date of their formal pledge to maintain the cap, Hampl said, although he added they could do so later if needed.

“The prediction is an analytical tool, while the hard commitment is a monetary policy decision -- it has to be distinguished,” Hampl told analysts at a live-streamed meeting in Prague. “The closer we are to the exit, the more likely it is that some comments will be a bit less clear than the hard commitments you got used to living with.”

With the country of 10.5 million people boasting the European Union’s lowest unemployment and one of the fastest-expanding economies, the bank said on Thursday it sees inflation hitting its 2 percent goal in the second quarter of next year, a quarter earlier than in the previous forecast. Policy makers kept their main interest rate at what they call a “technical zero” of 0.05 percent.

The monetary-policy meeting on Thursday was the first under new Governor Jiri Rusnok, who replaced Miroslav Singer, the architect of the koruna cap. The only Czech to ever hold the positions of prime minister, finance minister and central bank chief, Rusnok is facing the task of dismantling the Swiss-inspired exchange-rate regime while avoiding the kind of currency jump that followed that country’s decision to remove the franc cap last year.

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