The Central Bank has long emphasized that generating profit is not its main task. This takes care of price and financial stability.
According to Jakub Seidler, chief economist at the Czech Banking Association, last year’s loss was due to a combination of a strong krone, declining equity portfolios and higher interest rates.
“The current situation of higher interest rates in the domestic economy is more unfavorable from the point of view of central bank management – interest payments for cash withdrawals are higher than interest payments obtained from invested reserves, as domestic interest rates are higher than for the currencies reserves are invested in. Added to this is the negative result of the development of equity portfolios last year, which is however a market fluctuation, which could, on the contrary, increase income from reserves in the coming years,” Seidler said.
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According to him, the leak itself is not a big deal for CNB. “The central bank can operate long-term even with a loss, which it will gradually write off from its future profits. From a long-term perspective, the central bank will generally always be profitable, since the volume of money from which it receives interest payments is always greater than the volume of money on which it pays interest. The difference is the cash in circulation,” added Seidler.
According to him, the problem of a high loss could arise when the market starts to question the ability of the central bank to carry out its monetary policy. But that’s not the case for CNB, Seidler stressed.
The financial statements of the CNB have not yet been assessed by an external auditor. The central bank’s final economic result for the past year will only be known in the economic report, to be released by CNB in the spring.
Ahead of last year’s so far preliminary result, the CNB recorded its largest annual loss in 2017 (CZK 249.3 billion), mainly due to the strengthening of the koruna after the end of the exchange rate commitment.
Czech National Bank
The Czech National Bank determines monetary policy, deals with financial stability, issues banknotes and coins, manages money circulation, payment systems and banking regulations. It also supervises the banking sector, the capital market, the insurance sector, supplementary pension insurance, credit unions and electronic money institutions and foreign exchange supervision.
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