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Czech central bank may discuss new use of foreign exchange reserves to curb inflation | WSAU News/Talk 550AM 99.9FM

By on March 20, 2022 0

PRAGUE (Reuters) – The Czech central bank could discuss whether to use its large foreign exchange reserves not only to stabilize exchange rate fluctuations but also to fight inflation, the bank’s governor said on Sunday. Central Jiri Rusnok.

The bank started buying koruna in the market on March 4 to halt a decline in the currency caused by the flight of investors after Russia’s attack on Ukraine.

It has no target rates or volumes and said its action was aimed at unwarranted weakening of the currency. The currency has regained almost all of its losses against the euro since the start of the Russian invasion on February 24.

Rusnok, however, said on Sunday that the bank could discuss more about using its large reserves accumulated in 2013-2017 – when the bank intervened to weaken the currency – to help control inflation.

“Now we need to discuss more further steps, if maybe we want to temporarily strengthen the krone not only for stability reasons, but also maybe to actively use the exchange rate as an anti-inflationary tool,” he said. he declared.

“But there needs to be a debate about it and it’s quite a complicated question. But I can’t rule it out for myself.

Rusnok also said that inflationary shocks as well as the war in Ukraine could bring Czech economic growth to zero by the end of the year and that a European recession cannot be ruled out.

The central bank has been faster than most in raising interest rates since last year, taking the main repo rate to 4.5% and signaling a further increase.

It held 157.46 billion euros in foreign exchange reserves at the end of February, or about two-thirds of the country’s gross domestic product.

(Reporting by Jan Lopatka, editing by Michael Kahn)