PRAGUE: The Czech central bank's foreign assets grew by nearly a billion euros in the 10 days to Aug. 20, the bank's balance sheet showed on Wednesday, suggesting the bank intervened markedly in the foreign exchange market to keep the crown from firming.
The bank initially intervened to weaken the crown in November 2013. Since mid-2015 it has been buying euros, at various intensities, to prevent it from firming to the strong side of 27 per euro. Interventions have been relatively small recent months.
But in the Aug. 10-20 period, central bank assets abroad rose by 26.3 billion crowns, or 975 million euros. In the Aug. 1-10 period, the receivables abroad also rose, by 11.8 billion crowns.
The statistic can involve other factors, especially conversion of inflows of EU subsidies into crowns which the bank does for the Finance Ministry, but the majority has been attributable to central bank activity.
A spokesman for the ministry said it had converted euros worth 9.1 billion crowns into the domestic currency from the start of August to date. The central bank does not comment on its market activity.
Including the initial 2013 intervention, the bank bought 20.5 billion euros through the end of June, the last month for which official data was published. Foreign currency reserves stood at 68.1 billion euros in June, about 39 percent of annual gross domestic product.
The crown weakened after the Britain voted in June to leave the European Union, but has since firmed. It mostly hugged levels around 27.02 to the euro in the Aug. 10-20 period, and last traded at 27.021 on Wednesday afternoon.
The bank has repeatedly said it expects to keep the cap on the crown until around mid-2017, when it sees inflation picking up to consistently meet the bank's 2 percent target.
The growth in foreign assets on the central bank's balance sheet was the highest since February, said Radomir Jac, chief economist at Generali Investments CEE.
Factors for raising interest in the crown are stronger-than-expected 0.9 percent economic growth in the second quarter and the central bank's confirmation it expects to remove the cap on the crown in mid-2017, he said.
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