Czech National Bank possibly intervened in FX market, korunas inflow likely to rise significantly by end-March

On Tuesday, the EUR/CZK forwards bolstered again after some relief in the earlier two days, suggesting a possibility of stronger intervention activity, noted KBC Market Research in a research report. For instance, implicit one year CZK deposit rate is seen lower than 1 percent, stated KBC Market Research.

Czech National Bank’s data on free liquidity & open market operations indicate that interventions against strengthening of the Czech koruna in the beginning of January might have already surpassed volume of euros purchased at introduction of the regime in November 2013.

Even if additional developments are difficult to anticipate, the inflow into korunas are expected to grow considerably  again by the end of March 2017 because of the upcoming end of the hard commitment to intervene and also due to CNB meeting that is scheduled to take place on 31st of March, added KBC Market Research.

Therefore, forward exchange rates might theoretically slip deeper below CZK 27 per EUR. However, they might temporarily weaken in the meantime when foreign investors’ demand for the koruna fades away for some reason, according to KBC Market Research.