The market now prices the fact that the CNB may take further action. We can expect the Czech koruna to trade at these levels for the coming months, especially if inflation remains low. At 12:00 (CET), 1 EUR = 28.40 CZK.
Source: Bloomberg, 12 January 2014
Last thursday, the Czech National Bank decided to intervene on the FOREX selling the Czeck crown. Although there had been some speculation these past few months, the decision was quite a surprise for the market, the crown losing 4% against the euro a few minutes after the annoucement. The euro is now trading at 27.07 against the Czech crown, which is the highest level for the euro since June 2009.
The CNB governor had been trying to convince his board for a while to go for such a move, willing to use teh FOREX as a the next tool to ease monetary policy. The objective of the board being an exchange rate of 1 EUR = 27 CZK, the market automatically went up to that level. We can assume that from now on the euro should not go under this level at least on the short term, knowing that CNB (according to Reuters) has the equivalent of 500 millions of euros to intervene.
The weak economic growth over the past two years and and the inflation target of 2% not being reached were among the factors supporting the FX intervention. Exports in the Czech Republic being worth approximately 80% of GDP (source : Wood & Co), the economy should definitely profit from it.