PRAGUE: The share of euro-denominated assets in the Czech central bank's international reserves rose to around two thirds in 2016 due to interventions to defend its cap on crown strength, the bank's annual report showed on Friday.
The Czech National Bank (CNB) abandoned its crown cap on April 6, ending a policy that had been in place since 2013 to revive inflation. Before this, it faced heavy flows into the market as investors bet the crown would jump once free.
The bank's reserves reached 70 percent of gross domestic product by the end of March - up from 47 percent at end-2016 - amounting to 122.6 billion euros ($133.77 billion), according to the latest data available but which does not show the structure of currencies.
The CNB annual report, published on Friday, showed bank held 53.3 billion euros, or 66 percent of its total reserves that amounted to 81.3 billion euros at the end of 2016, up from a 59 percent share at the end of 2015.
It also held $18.98 billion, or 22 percent of reserves. The rest was in Canadian and Australian dollars, Swedish crown, Japanese yen and British sterling.
The central bank scooped up foreign currency worth 16.9 billion euros in 2016 to defend its cap. Intervention volumes soared at the beginning of 2017 when data showing inflation rose back to the bank's 2 percent target and led to investors placing bets on the crown as the end of the cap looked near.
In January and February, the bank bought 22.6 billion euros from the market and estimates show heavy March activity as well.
Much of that flow has gone into domestic state bonds, with the share of non-residents' holdings rising to 47.3 percent in March, up from 42.0 percent in February and 24.7 percent the year before, finance ministry data shows.
The large market positioning has left the crown in limbo. A tame rise of less than 2 percent after the exit has pushed many investors to stay in their bets hoping for longer-term firming.
But the crown also faces volatility risks if investors get out of positions at once, and the central bank has said it may take months for the currency to find its new value.
On Friday, it traded up 0.2 percent at 26.964 to the euro.
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