Final Word from Tuesday, March 17, 2020

The entire world is loosening monetary policy in reaction to the coronavirus outbreak, but Czech central bankers are still talking about tightening monetary policy. The CNB was forced yesterday to cut its benchmark interest rate after two years of raising rates as a way to revalue the crown. The rate cut is of course a loosening of policy, but at the same time, Gov. Jiří Rusnok and ex-Gov. Miroslav Singer are preparing the ground for selling off some of the foreign reserves from the devaluation of Nov. 2013. They see this as a way to defend the crown against a depreciation caused by foreign traders seeking safer currencies. This would be a tightening of monetary policy. Other central banks will be pumping money into the economy, but the CNB will taking money out by buying up crowns with its dwindling euros (it, too, has been killed on the stock markets). The CNB chose not to reverse the devaluation of the crown while the economy was strong, and Czechs will now pay the price. [ Czech Republic National Bank revaluation devaluation exchanges ]