On 6th April, the Czech National Bank (CNB) announced an end to their currency floor
The market reaction was muted by comparison to that in the response to the collapse of the EURCHF floor in 2015
We analyse the differences in economic fundamentals and central bank policy which allowed this much smoother exit from a currency floor.
We assess the implications of the removal of the CZK to EUR peg on April 6 2017 and what this means for how central banks manage peg removals going forward.
Did safe haven flows drive an ever appreciating Swiss Franc in the run up to January 2015?
The data reveal that, on the contrary, a general lack of Swiss outflows and repatriation of foreign bonds bought by Swiss domestic investors, can explain much of the pressure on the Franc to appreciate.
Ultimately domestic investors created an insurmountable problem for the Swiss National Bank (SNB) in the run up to the removal of the peg.
• Has the SNB reached the Zero Lower Bound? After last week’s ECB deposit rate cut, we assess the likelihood of further accommodative monetary policy in Switzerland.
• By applying a Taylor Rule approach to reveal the SNB’s own estimate of the neutral real interest rate, we estimate that there is indeed room for further interest rate cuts, especially as domestic Swiss real interest rates are still moderately elevated.
•The economic rationale for entering, and ultimately exiting a regime of exchange rate interventions is markedly different for the Czech National Bank relative to the Swiss National Bank.
•The central bank balance sheet, politics and nature of the underlying economy (and currency) are, amongst other things, important factors in helping determine the likelihood of a central bank continuing to intervene in the FX market.
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