The Czech central bank board kept its outlook for exit from its weak-crown policy around the end of 2016 in place on Wednesday and said it did not need to wait with a move until the European Central Bank ends its asset buying programme. The CNB reiterated its commitment to prevent the crown from firming beyond levels around 27 to the euro, a policy meant to help inflation recover to a 2 percent target.
Inflation stood at just 0.1 percent in November despite economic growth of over 4 percent. A number of analysts had said the ECB's decision on December 3 to extend its asset-buying programme until March 2017 could bring some dovish comments from the Czech policymakers, and eventually force the Czech bank to delay the exit from its ultra-loose policy into 2017. But Governor Miroslav Singer said this did not need to be the case.
"Our monetary cycle is not synchronised with the ECB, we had started effective easing earlier and it is easily possible we will get out of it earlier," Singer told a news conference after the bank board's final policy meeting this year. "That does not exclude interventions against sharp exchange rate movements, but the exchange rate commitment does not have to exist." He said the ECB policy action was a positive factor for the Czech economy, through its positive impact on demand in Europe. He noted that while headline inflation has been held down mainly by oil prices, core inflation has been picking up.
Although the bank kept its policy outlook unchanged, there is an additional uncertainty stemming from the replacement of two out of the bank's seven board members, including Singer, whose terms expire in June next year. President Milos Zeman, whose sole power it is to appoint the board members, opposes the weak crown regime. However, his selected candidate for governor and Zeman's only appointee to the board so far, Jiri Rusnok, has backed the policy.
The bank plans to scrap the crown cap when inflation is sustainably on target, allowing the return of interest rates as the main monetary tool. The repo rate has stood at 0.05 percent since 2012. The crown was unmoved after the policy meeting announcement, trading flat on the day at 27.021 to the euro. It has been mostly pinned in a 27.020-040 range since the beginning of December.
The bank's resolve to hold the crown from firming has been repeatedly tested by the market. The bank bought 7.1 billion euros in July-September. It did not intervene in October. November data are due out on January 7, and analysts estimate the bank returned to the market in force after the bank's last meeting on November 5.
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