KBC Market Research Desk
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CNB’s governor sees no need to raise the floor for EUR/CZK, but confirms later exit from the current regime
Despite restricted temporary deviations, the Czech currency has been experiencing a period of very low volatility since the introduction of a quasi-fixed FX regime by the CNB in November 2013. That is why big attention has been to all comments by top Czech central bankers, in which a modification of the current status quo (targeting the EUR/CZK pair at above the 27.0 level) might be indicated. In this respect, yesterday's interview of CNB's governor Singer for Bloomberg supports our medium-term view that the exit from the existing monetary scheme will not happen before summer 2015. Governor Singer reiterated the CNB’s policy stance that the central bank would defend the EUR/CZK floor until the second quarter of the next year at least, which would then suggest that the first (repo) rate hike would come only afterwards. Importantly, Singer ruled out possibility that the CNB could easily hike the floor for the EUR/CZK to loose monetary conditions and boost inflation. The head of the CNB also praised recent ECB actions, which indirectly eased monetary conditions in the Czech economy.
While we believe that the Czech currency will remain stable for several quarters, minor increase in its volatility may occur prior to the next CNB Bank Board meetings. The Board will discuss a new macro projection, and we expect it to repeat most of what Mr. Singer said yesterday but in much more specific way at the press conference later in the afternoon.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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