Another Central Bank Throws In The Towel: Czech National Bank Ends Currency Cap, Floats Koruna
by Tyler Durden
ZeroHedge.com
Apr 6, 2017
Four months ago we showed that according to 6 month EURCZK forwards – driven by a recent surge in Czech inflation – the market was convinced the Czech central bank would end its Koruna peg to the Euro some time before the summer.
As ING stated at the time, “It shows that the market is positioning against the CNB floor more intensively, as accelerating inflation is increasing the odds of the approaching exit. The Dutch bank said it expected the currency regime to be scrapped around April or May, with annual inflation forecast to climb from 1.5 per cent to 1.9 per cent in December – close to the central bank’s 2 per cent target.
“If the intensity of interventions saw during the first days in January continues in the first quarter of 2017, total interventions in the quarter might easily overcome the whole 2016-levels”, he added.
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Moments ago all those traders who bet heavily on an end to the currency peg were rewarded when the Czech National Bank announced that just like the SNB over two years earlier, it ended its regime limiting koruna appreciation, in the process setting in motion one of this year’s biggest currency trades which according to Bloomberg has attracted as much as $65 billion in estimated capital. The announcement caught some by surprise as it came during a non-rate setting meeting, diverging from the original view of it being done at a scheduled monetary policy meeting in May
In anticipation of the peg’s end, investors betting on koruna gains had poured into Czech assets, boosting foreign capital inflows in multiples of the levels normally seen in the country’s balance of payments. But, as Bloomberg adds, at least some of the speculative capital fled the koruna after the central bank stopped providing guidance at the end of March on the likely timing of the exit. The koruna has since shown volatility not seen in years.
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