The Czech central bank made the koruna its policy tool to beat deflation.

The Czech economy faced the risk of deflation with its policy rate already at the lower bound. The central bank's conventional toolkit was out of room, so it needed a way to loosen conditions without cutting rates further.

On 7 November 2013 the Bank Board chose the koruna itself. It said it would keep the exchange rate close to CZK 27 per euro by selling koruna and buying euros, stepping in as needed and treating the level as a long-term commitment. Governor Miroslav Singer stressed the bank was not limited by its reserves.

The market believed the announcement immediately, so the actual interventions were concentrated in the first days. The weakening lifted imported prices, supported demand for domestic goods, and did so at negligible cost because the bank created koruna while policy rates were at zero.

Use the exchange rate as the last easing lever

The policy rate was already at zero, so further cuts were impossible

A weak currency imports inflation, which is what a deflation-threatened economy needs

Announcing an unlimited commitment kept the market from testing the bank

Interventions at zero rates cost the bank almost nothing to carry

When interest rates cannot go lower, a small open economy can still ease by committing to a weak currency, provided its reserves can back the promise.

The floor held for about three and a half years. Inflation returned toward target, and once that goal was met the CNB let the koruna strengthen again and abandoned the commitment, closing the episode without a currency crisis.