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By Jason Hovet
PRAGUE, April 6 (Reuters) - The Czech crown strengthened on Thursday, after the country's central bank said it had removed its long-held 27-per-euro cap.
The crown firmed to as much as 26.72 per euro as it began to gather momentum following a relatively modest initial reaction.
At roughly 1.4 percent, however, it was a more muted rise than most analysts had forecast. Overnight implied volatility, which on Wednesday had hit a nine-month peak as investors bet on, or sought protection against, an imminent removal of the cap, also tumbled to 1.65 percent from around 4.65 percent beforehand..
The central bank had been flagging its plans to remove the cap for months and gave a strong hint last week that a move might be imminent.
The decision followed a rise in inflation to 2.5 percent in February, above the bank's 2 percent target. It has also seen a tripling of its foreign exchange reserves over the more than 2 1/2 years the cap has been in place.
The central bank said on Thursday its foreign assets had grown by 230 billion crowns, or 8.53 billion euros, between March 21 and 31
Yields on the Czech Republic's crown-denominated sovereign debt rose across the curve, while the country's euro bond yields mostly.
Yields on the local two-year issue were up 15 basis points at minus 0.132 percent after earlier touching minus 0.088 percent - their highest since July 2016.
Additional reporting by Karin Strohecker and Jemima Kelly in London,; Writing by Marc Jones, editing by Larry King