Meeting of the CNB Bank Board

At its regular meeting the Bank Board discussed issues of monetary policy. The Board's standpoint is given in the following commentary:

The exchange rate has appreciated rapidly again in recent days. The year-on-year appreciation of the koruna against the euro has exceeded 11%. This rate of appreciation is greater than that which can be explained by the transformation process and by the development of fundamentals in the Czech economy. We are seeing a deviation from balanced development and an overshooting towards appreciation. This is giving rise to an excessive tightening of monetary conditions and could have destabilising macroeconomic and microeconomic effects and result in a widening economic imbalance and a deterioration of the financial position of businesses.

The appreciation is accelerating in a situation where:

1. An agreement has been reached between the central bank and the government to prevent privatisation revenues getting onto the foreign exchange market. The inflow of privatisation foreign direct investment will thus have no impact on the exchange rate.

2. The balance of payments data show that under foreign direct investment the proportion of reinvested profit is steadily increasing, which again has no impact on the exchange rate.

3. Non-privatisation foreign investment is showing a certain slowdown.

All these balance of payments facts and projections are counteracting the present appreciation trend.

The CNB Bank Board considers the present trend to be an exchange rate bubble. The Board will take this evaluation into account in its future measures.

Alice Frišaufová
CNB spokesperson