Central Bank intervenes against crown

26-10-2001

In a surprise move, the Czech National Bank on Thursday intervened against the Czech crown to show its dissatisfaction with the development of the exchange rate. A strong crown is bad news for Czech exports and rapid fluctuations of the exchange rate in either direction are bad for the whole economy. Vladimir Tax has more.

On Thursday, the Czech National Bank sold hundreds of millions of euros to warn the market that it is prepared to fight the continuing strengthening of the Czech currency. The intervention sent the crown down by 50 hellers to 33.78 crowns per euro but later in the day the crown started gaining again. The Central Bank left the interest rates intact for the time being, although all European central banks and the Fed have cut their interest rates recently.

The Czech National Bank considers intervention on the money market faster and more efficient for the whole economy than interest rate changes.

The move has surprised all players on the market. According to media reports, the biggest losers were speculators in London who were relying on a further strengthening of the Czech crown.

Experts say the Central Bank is likely to intervene again in the coming days or eventually cut interest rates. A further strengthening of the crown is seen as inevitable as the already massive inflow of foreign capital to the country is expected to grow due to both green-field investments and the planned privatisation of state assets worth hundreds of billions of crowns.