We are going to have 31st March exactly one week from today. So the last day of the first quarter. Not very interesting information. It starts getting better when we add another information to it: All members of the bank board of Czech national bank (CNB) are planning to take part in regular meeting of the bank board which is going to be held on Thursday 30th March. And it is known that CNB officially guaranteed to keep holding the exchange rate of the crown in so-called intervention regime for an entire first quarter, meaning it won’t allow it to appreciate under 27 crowns for euro. Not more not less. There are no guarantees for the second quarter which is starting next Saturday.
Surely the individual members of the bank board were heard to say during many occasions how ideal it would be to end with the interventions that time or the other time; altogether all those from CNB who were talking about the exchange rate mentioned the “ideal” later date sometimes during the middle of the year or even later. But each of those statements can be presented as a personal opinion of some member of the bank board if it comes to it. And the truth is that each of the central bankers who were talking about the timing of the interventions knows very well that words are spoken but the action is being decided behind the closed door of the meeting of the entire bank board. Each of them was saying what they were saying mostly to discourage the speculators from giant speculating on the appreciation of the crown. Because the more are the speculators speculating today the more money it costs CNB. Each speculator that got driven off counts because with each speculator who got discouraged is the entire intervention fun getting a bit cheaper. And the best way how to discourage the speculators is to convince them that the speculations are pointless – or that the interventions are going to last for a long time, alternatively that after their ending the crown can get (!) even weaker, not stronger.
The thing is that it is obviously nonsense. If there was a single reason for the crown to really depreciate after the end of the interventions how one of the central bankers was trying to convince us with his poker face, of course, such tendencies would be manifesting already. The Reality is that once the interventions end respectively once the financial market takes a notice they ended significant turbulences of the exchange rate are going to happen on both sides. Only then consequently, the exchange rate is going to stabilize in couple of days and long-term gradual appreciating trend against the euro is going to take place. By the way, if I was a central banker I wouldn’t be announcing the end of the interventions in advance but backward. I would simply end with the interventions one day and let the exchange rate to its fate. And then let’s say a day later I would confirm it officially. This leaving of speculators in doubt about the details would work as another way of how to restrict the speculations against the crown a bit and therefore make this entire thing from CNB’s point of view “cheaper”. So all things considered: we are probably going to have one week of relative peace on the forex market but then we are going to have to be alerted and have eyes of a hawk every day. Then the D-day can come completely whenever.
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