Czech Republic

The Czech Republic underwent a period of rapid financial innovation and liberalisation, with unsuccessful exchange rate pegging and monetary targets replaced by inflation targets from 1998.


Years Targets and attainment Classification
1993-95 currency pegged to basket with narrow margins set by central bank (but private forex market with some autonomy); monetary targets overshot 2 years out of 3; monetary policy operations initially focused on bank reserves, from 1995 on short-term interest rates augmented exchange rate fix AERF
1996-97 exchange rate band widened February 1996, peg abandoned May 1997; monetary targets undershot 1996, met 1997; monetary instruments now mainly indirect; rapid financial market development loosely structured discretion LSD
1998-2005 declining inflation targets met or near-met except for undershoot 2003 (inflation expectations also fall briefly below target band); main monetary instrument is repo rate; changes to inflation targeting procedures loose converging inflation targeting LCIT
2006-17 inflation targets (lower from 2010) met, except overshoot 2007-8 and undershoot 2009, when inflation expectations returned quickly to the target zone, also undershoots 2013-16 when medium-term expectations remained anchored; initial aim of entering ERM2 and then adopting euro set aside; occasional forex intervention; exchange rate floor November 2013 to April 2017, as additional instrument in IT (instead of QE) to avoid deflation, with significant forex intervention in last few months full inflation targeting FIT

Selected IMF references: RED 1993 pp36-7; RED 1994 pp25-6, 33-7, 46-7; SBS 1995 pp52-6; SI 1998 chIV; SR 2001 pp22-5; SR 2004 p7; SR 2005 p12; SR 2010 p34; SR 2011 p14; SR 2014 pp5-6, 21; SR 2016 pp6, 10-12, 38-42; SI 2017 pp2-4; SR 2017 pp13-15.

Additional sources: Beblavy (2007a); Beblavy (2007b).

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