PRAGUE: The Czech central bank is more concerned with the inflation trend than with hitting a specific rate of price growth when considering when to lift its cap on the crown's exchange rate, Governor Jiri Rusnok was quoted as saying on Monday.
Inflation reached the central bank's 2 percent target in December for the first time in four years, and the markets are betting increasingly heavily on the bank scrapping the cap in the second quarter - the earliest time it has said it may do so.
"The absolute level (of inflation) is not as significant as the trend and its anchoring in the overall development," Rusnok told news website Seznam.cz/zpravy, according to the transcript of a video interview released on Monday. Rusnok said an updated economic outlook the bank releases in early February will be important for its decision-making.
"In order to be sure that it is time to step on the brake, to leave the exchange rate commitment and move on to interest rates, we want to have it (the trend) really strongly confirmed," he said in the interview, which was conducted on Wednesday.
Since late 2013 the bank has had a policy of preventing the crown from strengthening to below 27 crowns per euro.
It has repeatedly stated its "hard" commitment to keeping that cap in place until at least the end of March, and Rusnok reiterated that position.
According to analysts' estimates, the bank bought around 9 billion euros of foreign currency in the first two weeks of January to hold the crown back as investors position for the expected rise in the currency once the cap is lifted. Rusnok said the bank had had no specific expectations regarding the volume of capital inflows into the crown, and he declined to comment on the amount of euros the bank has bought in the market in recent weeks.
The bank's foreign exchange reserves have doubled since the launch of the intervention regime and now total 46.5 percent of the country's annual gross domestic product.
Rusnok said the exchange rate will be volatile after the exit from the intervention regime.
"Should the swings be unreasonably large by our judgment, we would act and we have sufficient ability and means for that," he added, suggesting the bank may still aim to keep the currency weak even after scrapping its official cap.
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