Abstract:

The Czech National Bank adopted a foreign exchange rate commitment to keep the exchange rate of the Czech crown at 27 CZK to € 1 in November 2013. The purpose of weakening the Czech currency was to avoid the risks of deflation and to support the competitiveness of the Czech exports by making goods cheaper on foreign markets. Higher demand for Czech goods should lead to a drop in unemployment and stimulate the Czech economy. The main goal of the article is to compare selected instruments of the monetary policy of the Czech National Bank in achieving the inflation target – open market operations, minimum reserve requirements, forward guidance, quantitative easing, negative interest rates and foreign exchange interventions. An evaluation of the economic development of the Czech Republic is performed at the end. The main interest rates of the Czech National Bank reached a level of technical zero. The potential of conventional instruments of monetary policy has ran out. The usage of negative interest rates faces legislative barriers and would lead to erosion of the profitability of the banking sector. Foreign exchange intervention helped to increase exports. Prolonged weakening of the Czech currency leads to an increase in the difference between the artificially weakened Czech currency and its real market potential which represents a risk to the entire economy.