Crown closes in on pre-interventions level to euro

17-10-2017

The Czech crown has now reached its strongest level to the euro since before the central bank launched an intervention policy in 2013.

Photo: Matěj SkalickýPhoto: Matěj Skalický On Monday the Czech crown reached 25.74 to the euro, its strongest level since the Czech National Bank started intervening on the international markets to keep the currency weak in November 2013.

Indeed the crown has gained over 4.5 percent since the central bank removed the currency cap in April, the financial and business news website iHned.cz wrote.

The level seen on Monday was just a few hellers short of that recorded prior to November 2013, when the Czech National Bank first adopted its divisive policy.

The chief economist of Patria Finance, Jan Bureš, told iHned.cz that the strengthening of the crown was in part caused by the way trades are conducted on the financial markets.

Mr. Bureš said that once the Czech currency fell below 26 to the common European currency investors, influenced by commentators, had begun to revise their expectations with regard to further strengthening.

This has been leading some investment funds to leave their bets on the further reinforcement of the crown open and to hold off on collecting profits, which would undermine the currency, iHned.cz wrote.

Economists say expectations of a further increase in interest rates by the Czech National Bank represent another reason for the crown’s buoyancy.

The chief economist of ING Bank, Jakub Seidler, said positive economic development, an overheating labour market and accelerated wage increases were all factors contributing to faster interest rate growth.

Indeed, ING bank believes that the crown could approach the level of 25 to the euro by the close of next year, iHned.cz reported.

The website also quoted Vojtěch Benda of the CNB’s Bank Board, who said last week that interest rates could grow faster than previously expected and that there could be one or two more interest rate rises before the end of 2017.

The first interest rate increase since 2008 took place in August as the Central Bank took action to dampen inflationary pressure from fast-growing wages and soaring house prices.

The chance of a further increase in rates has led new investors to buy the crown and to bet on its further strengthening. Higher rates in the Czech Republic are attractive for investors looking for a place to increase the value of their free money, iHned.cz said.

17-10-2017