CNB statement on amendment concerning CNB operations
The Czech National Bank and the Ministry of Finance have agreed to submit an amendment to the Act on the CNB concerning CNB open market operations. The current amendment, which was approved by the Czech government today, is based on an original comprehensive amendment to the Act on the CNB which is before its second reading in the Chamber of Deputies.
The amendment would broaden both range of monetary policy instruments and the set of entities with whom the CNB may conclude open market operations. The current wording of the Act on the CNB allows the CNB to purchase/sell government bonds from/to banks regardless of their maturity, but with regard to other securities the Act on the CNB restricts the CNB to money market operations, i.e. operations in instruments with a maturity of up to one year. The amendment would enable the CNB to trade on the market in instruments with longer maturities and with additional counterparties, including insurance companies, pension management companies and other institutional investors.
The amendment to the Act on the CNB concerning CNB open market operations which was approved by the government today does not affect the prohibition of monetary financing. Neither the original nor the current draft amendment to the Act on the CNB allows the CNB to make purchases on the primary government bond market, i.e. directly from the government. If passed into law, the amendment would enable the CNB to enter the secondary market in any financial instrument, including government bonds, where necessary to fulfil its duties.
The CNB has been seeking approval of this step since 2016 for the very reason that it would enable it to prepare for extraordinary situations such as the one we are now facing in connection with the coronavirus epidemic. Although the CNB regards it as desirable for the amendment to be adopted speedily so it can take effective action if the financial market situation deteriorates suddenly, the Chamber of Deputies today refused to include it in the programme of its 42nd session in shortened proceedings. If the amendment is passed, decisions to use the new instruments will be fully in the competence of the CNB.
Director of the Communications Division and CNB Spokesperson