Central European Daily

The Czech National Bank has sold 200 bn CZK in its intervention and thus increased its FX reserves by more than 20% (to EUR 41bn) in two weeks. The increase was not as huge as in Switzerland in 2011, when the central bank decided to depreciate the Swiss franc and its FX reserves augmented by 35%. However, the depreciation of the franc was much more significant – almost 20%, while the koruna’s losses hovered around 5 %. We believe that similarly as in the case of Switzerland, the necessity of interventions will calm down and thus the pace of FX reserves accumulation should slow down in coming weeks. We expect significant increase of CNB activity later when an exit from the current regime will be closer and related willingness of Czech exporters to hedge will increase and as a result pressure on the koruna to strengthen. Note, however that according to Governor Singer the possible exit will not happen sooner than in the first half of 2015, which is in our view a realistic estimate.