ČNB's weak crown workload stacking up
21. 3. 2016 | Source: BusinessInfo.cz
The Czech National Bank [ČNB] is assessing the consequences of the European Central Bank (ECB) move to push up its quantitative easing (QE) by EUR 20bn per month. The step will mean the ECB pouring an overall EUR 80bn into economies each month, partly by purchasing government bonds - and from the second quarter of this year also corporate bonds.
The fresh money has to settle somewhere and it is possible that some of it will flow into Czech crown investments. "And just now faster flows of speculative money, which in January and February forced the ČNB into a more active defence of its weak crown [policy], are the main reason why the ČNB has started to consider negative interest rates," said Jan Bureš, chief economist at Poštovní spořitelna. "In March the flows of money eased off and judging by the lower increase in liquidity in the Czech banking system, the ČNB was not so busy," he added.
Analysts said the Czech central bank cannot back away from its commitment to holding back the crown before the ECB ends its 'money-printing' programme. So far the ECB has not decided whether to extend the duration of its QE beyond March 2017. "If the ECB extends its direct injecting of money to the end of 2017, the ČNB would not dare to end its currency intervention any time soon and sooner or later it would probably postpone its planned exit to the second half of 2017," anticipated Bureš.
In January alone, the ČNB purchased euros for approximately CZK 56bn. Chief economist of ING in the Czech Republic, Jakub Seidler, said that the ČNB would have to increase its intervention in its fight to stop the crown appreciating in value in order to compensate for the weakening of the euro.
Originally published in E15 weekly, economic and business newsmagazine. Author: Zdeněk Pečený