The CNB Bank Board decided at its meeting today to keep interest rates unchanged. The Bank Board also decided to start using the exchange rate as an additional instrument for easing the monetary conditions. The CNB will intervene on the foreign exchange market to weaken the koruna so that the exchange rate of the koruna against the euro is close to CZK 27.
After three rate cuts in 2012 exhausted room for traditional monetary easing, Czech policy makers are trying to head off the risk of deflation. The central bank’s board rejected the interventions in August and September.
The koruna weakened 2.9 percent after the announcement to 26.519. Traders say that CNB directly intervened on the market to weaken koruna, right after the announcement.
(Source: Bloomberg, CNB, Reuters)