Research Detail
| 2023/08/21 / Erste Group Research |
CEE Special Report | Central bank losses have eroded their capital A central bank cannot default on its own currency and it is protected from court-ordered bankruptcy. There is no economic logic that compels a functioning central bank to have positive equity. Anyone doubting that a central bank can operate with negative equity has only to look at the reasonably successful monetary policy operated over several years by the Bank of Israel, the Czech National Bank, and the Central Bank of Chile, for example. Finally, episodes of negative equity or recapitalization should not be an opportunity for the government to exert pressure on how the central bank discharges its mandates. In case of Czech National Bank, substantial increase of the balance sheet during FX intervention floor policy period (2013-17) has increased sensitivity to FX and interest rate development. Revaluation of assets due to FX appreciation led to massive unrealized losses in Czechia. In Hungary, on the other hand, the central bank expanded its balance sheet through QE program and providing cheap liquidity to banks in 2020-21, substantially increasing interest rate risk. only Hungary had legislation requiring recapitalization of central bank in certain timeframe (this has recently been extended to 5Y by amendment). National Bank of Poland and National Bank of Romania increased their balance sheets only marginally during pandemic via limited asset purchase program. |
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General information
| Author | Erste Group Research |
| Date | 2023/08/21 |
| Language |  |
| Product name | CEE Economies Special Report |
| Topic in focus | FX, Macro/ Fixed income |
| Economy in focus | CEE, Czech Republic, Hungary, Poland, Romania |
| Currency in focus | Czech Koruna, Hungarian Forint, Polish Zloty, Romanian Leu |
| Sector in focus | - |
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