At the previous Czech National Bank meeting, 24 September, it was decided to maintain a zero rate policy. More importantly “…The Bank Board also decided to continue using the exchange rate as an additional instrument for easing the monetary conditions and confirmed the CNB’s commitment to intervene on the foreign exchange market if needed to weaken the koruna so that the exchange rate of the koruna is kept close to CZK 27 to the euro…” Further, the CNB asserted that it would act as needed without any meetings of the board.
The Czech Republic is a non-Euro area member; however, CNB policy keeps a ‘floor’ under the Koruna. Officially, the intent is to keep the Koruna ‘around’ 27 to the Euro. It’s worth noting, here, the European Union’s ±15% ERMII criteria, which is a transitionary mechanism towards adopting the Euro: the transitionary currency must be maintained within a ±15% fluctuation band above or below a central rate. It just so happens that the Koruna has been well within this band during the previous two years; ±2.4%, using the average of the 2 year high and the floor as a central rate. The CNB intends to keep the policy exchange rate in place until “…at least until mid-2016…”
Read the rest of the article EUR/CZK: From floor to Ceiling?