Czechs Dust Off Old Tools After Swiss-Style Koruna Peg Ends
- Currency weakens Friday morning in signs of volatility
- Bank shifts back to interest rates, interventions as tools
A pedestrian walks past the headquarters of the Czech central bank, also known as Ceska Narodni Banka (CNB), in Prague, Czech Republic, on Thursday, Aug. 4. 2016. The Czech central bank, in a meeting led by its first new governor in six years, kept interest rates at what it calls “technical zero” and maintained a commitment to cap appreciation in the koruna.
Photographer: Martin Divisek/BloombergHaving promised to spare the world from a currency shock like the one in Switzerland more than two years ago, the Czech central bank kept its word. Now comes the hard part.
After resurgent price growth rendered the policy obsolete, rate setters on Thursday scrapped a cap they imposed to avert deflation by keeping the koruna from appreciating. Now they’re dusting off old tools in a return to conventional monetary rules following three years of the currency being stuck weaker than 27 against the euro. It also starts a scramble by investors to unravel as much as $65 billion in long-koruna positions that they built up in the hope of a quick payoff.