The Czech National Bank’s high foreign exchange reserves are a great tool for maintaining the exchange rate at current levels despite sharp inflation. This was confirmed by economists at the conference Quo vadis, CZK ?, organized by the investment company EMUN and whose media partner was the business server newstream.cz. However, long-term holding of the euro is also beginning to have negative effects. “Because of this, the koruna is behaving manic-depressively and the CNB is making a great effort to coach it,” said one of the conference’s speakers and leading Czech currency expert Petr Krčil from Art of Finance.
The koruna has been under considerable stress in recent months. This is partly due to the enormous inflation, which is the highest in the region, and partly due to the effects of the war in Ukraine, which is making the Czech currency a risky asset. This is one of the reasons why the koruna depreciated significantly shortly after the start of the Russian invasion, and the Czech National Bank entered the markets and intervened to support the domestic currency. Thanks to this activity of central bankers and the open willingness to continue interventions the exchange rate stabilized at around 24.50 crowns per euro.
“One of the reasons for this situation is precisely the large foreign exchange reserves that the CNB has already bought at a time of rising inflation and that it has held for too long. Due to rising inflation and higher CNB rates, especially compared to the European Central Bank, the koruna is behaving quite manic-depressed. When they do well, they buy a huge number of people and the exchange rate strengthens, but at the slightest negative news, they sell out quickly. The CNB then costs a lot of effort to maintain the exchange rate, “he said EMUN investment breakfast called Quo vadis, CZK? Petr Krčil from Art of Finance.
Kurz? Around 25 crowns per euro
Moreover, the covert purchase of euros through European funds does not help. According to Krčil, the balance is still positive and the CNB will buy more euros per year than it will sell. “I think that the central bank will eventually have to speed up the sale of the euro. My model of the development of the koruna’s exchange rate also takes this into account, “Krčil added. At the same time, he expects to break the limit of 24 crowns per euro later this year, specifically at 23.80. For next year, it expects the exchange rate of 23.2 crowns per euro, and for 2024 even 22.70.
The chief economist of the Czech Banking Association, Jakub Seidler, disagrees, as does the koruna’s stagnation at best.
“My outlook for the koruna against the euro is not positive. The market expects some six percent interest in the Czech interest, but the Fed’s rates will rise, the ECB will probably start raising rates, which would put a lot of pressure on the koruna. After all, i large institutions approached by the Economist have long seen the crown somewhere at the current level of around 25 crowns. That is, in the event that the CNB does not intervene in favor of the koruna, “Seidler said.
According to him, the 25-crown mark is a new turning point for the CNB. While in March the central bank began to support the koruna just below the level of 26 koruna per euro.
Where are you going, crown? Leading economists will address the future of the Czech currency
Euro for less than 24 crowns? Even that is possible! Economists will be discussing the development of the koruna’s exchange rate this Wednesday at the Investment Breakfast organized by EMUN. Leading currency expert Petr Krčil from Art of Finance and former Vice Governor of the Czech National Bank Mojmír Hampl will also speak. The business server newstream.cz is the media partner of the event.
The exchange rate is not a good tool in the fight against inflation
Why is the CNB now intervening in favor of the koruna, when a few years ago it did the exact opposite and artificially kept the exchange rate at 27 koruna? According to economists, this is the reason high inflation. Central bankers are trying to reduce the price of imported materials and goods at the exchange rate and believe that this will also be reflected in final prices, which would trigger a reduction in inflation. However, according to economists, central banks generally use this tool less often at the investment breakfast organized by EMUN because it has a number of pitfalls.
“I have nothing against using the koruna’s exchange rate to reduce inflation, I called for it myself. When else than during the war to do so? However, this does not mean that using this tool is somehow painless. It is a form of redistribution, “said Mojmír Hampl, former vice-governor of the Czech National Bank and member of the National Budget Council, during the event.
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The ruble strengthens against both world currencies. The euro is the strongest in two years. He is helped by the demand of Russian exporters, who have to exchange foreign currency in order to pay taxes.
Štěpán Křeček: Many companies doing business in Russia have underestimated the risks. It will be painful for them now
Political risks have been ignored in Russia for a long time, says Štěpán Křeček, chief economist at BH Securities. “It simply came to our notice then. There is even a risk that the factories of foreign owners will be nationalized, “says Křeček in an interview with newstream.cz. According to him, the West should not accede to Russia’s unilateral demands for payments in rubles.
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