FOREIGN EXCHANGE INTERVENTION BY THE CZECH NATIONAL BANK

The article generally analyses the causes leading up to the foreign exchange intervention by the Czech National Bank in November 2013 and its consequences. It explains the reasons for further easing monetary policy and for choosing the exchange rate instrument and its specific level. The article examines the use of exchange rate by the Czech National Bank as a monetary policy instrument at the zero lower bound on interest rates and discusses its expected benefits in the case of the Czech Republic. The most interesting aspects of the Czech National Bank's experience include the debate on how to use the exchange rate as a monetary policy instrument at the zero lower bound and on how transparent it should be. This debate eventually resulted in the choice of a publicly declared, one-sided exchange rate commitment. The use of foreign exchange interventions to ease monetary conditions in an open economy is a rational choice. This monetary instrument is used only when interest rates are at a zero level, i.e., when the standard natural tool is no longer available. The pass through at the zero lower bound is significantly higher than that assumed on the basis of past experience during normal times. The depreciation helps net exports, which is a good side-effect stimulating the economy. The power of the central bank when intervening against its own currency is not limited by the volume of reserves. In essence, in an economy with abundant liquidity in the banking sector, such as the Czech Republic, foreign exchange interventions are the most efficient way to implement quantitative easing. The article has a nature of applied research focused on the field of monetary policy. The subject of research is the foreign exchange intervention by the Czech National Bank. The article contains analytical views of various unconventional monetary policy measures and formulates synthetic viewpoints based on multi -criteria exploration.