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UPDATE 2-Czech central bank reserves hit 70 pct/GDP as crown bets surged before cap end
2017年4月7日 / 上午11点09分 / 7 个月前

UPDATE 2-Czech central bank reserves hit 70 pct/GDP as crown bets surged before cap end

* Reserves soar as bank defended 27/euro crown level

* Board minutes show “end-Q1” pledge prevented earlier FX cap exit

* Czech crown graphics:

* For reserves table click (Adds record jump in reserves, background, updates graphic)

By Jan Lopatka

PRAGUE, April 7 (Reuters) - The Czech central bank’s foreign currency reserves soared by a record 17.1 billion euros in March, reaching 70 percent of gross domestic product as the central bank intervened heavily to defend its weak-crown policy, data showed on Friday.

The bank lifted the cap on Thursday after nearly three and a half years which saw a total of around 73 billion euros in interventions, according to central bank foreign exchange trading and reserves figures.

Minutes from the bank’s March 30 meeting also released on Friday showed the bank felt it was ready to drop the 27 crown per euro cap on the currency at that meeting; but it did not take the leap because it had pledged to markets it would not move before the end of the quarter - then one day away.

“The prevailing view was that maintaining the exchange rate commitment was no longer consistent with the macroeconomic conditions in the current situation,” the minutes said. “Moreover, continuing it could increase the risk of macro-financial imbalances.”

The foreign currency reserves, at 122.6 billion euros in March, would cover more than a full year of the country’s imports, a huge pile relative to other EU nations.

Poland, whose population is four times bigger, has reserves of 104 billion euros. The Czech reserves bear comparison to Switzerland, a reserve-currency economy. The Swiss, who dropped their franc peg in 2015 and caused a huge market shock, have reserves of over 100 percent of GDP.

The bank only reported its reserves rise for March, not exact intervention volumes which are only due for release next month. The reserves numbers have served as a rough proxy for the bank’s market activity.

Opponents of the bank’s policy have pointed out any rise in the crown’s exchange rate means the bank will be losing money on its beefed up foreign assets.

The bank will also face costs of paying interest to banks on sterilising crown liquidity created by the interventions. The bank has insisted that losses do not affect the conduct of policy.


The crown traded at 26.635 to the euro on Friday, 1.4 percent stronger than the bank’s abandoned cap level of 27. Bond yields rose on Thursday and Friday, especially on shorter maturities preferred by investors into the crown.

The small rise in the crown reflects the bank’s guidance toward the exit and long crown positions built up in the past months.

Analysts estimate those between 25 and 60 billion euros -- or between 15 and 34 percent of GDP -- which traders say will be hard to square. Some predict the crown may even weaken if there is a wave of profit-taking.

The market sees the crown rising by about 5 percent over the next year, a Reuters poll ahead of the cap removal showed.

Central bank Governor Jiri Rusnok said on Thursday the bank would have a wide tolerance for crown moves following the float but would be ready to smoothen out swings it deems excessive. Analyst took that to mean the bank may tolerate the crown moving between 25 and 28 per euro.

The weak-crown policy was dropped after its stated aim, a rise in inflation, was met. Inflation hit 2.5 percent in February and the central bank sees it rising close to 3 percent later this year, giving the bank a buffer above its 2 percent target. (Editing by Ralph Boulton)

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