Czech Central Bank to Give Up Currency Cap

The Czech crown will not necessarily return to levels seen before the central bank began its intervention programme once it gives up the currency cap, a senior central banker said on Wednesday in a banking magazine article he co-wrote.

The crown has firmed in the last few weeks and on Tuesday it touched 27.140 per euro, the strongest level since just after the cap was set at 27 in November 2013. It peaked at 23 in July 2008.

 
Vice Governor Vladimir Tomsik said he expected the crown to strengthen after the cap goes but that would depend on real convergence with the euro zone inflation differential.

“The real exchange rate is not to be expected to appreciate at the same pace as before the crisis. A slowdown or even temporary halt, which we have seen since 2009, is in line with the development of economic fundamentals, first of all with real convergence,” the article in Bankovnictvi magazine said.

“It (real convergence) stopped in 2008 already, and with it the real appreciation of the crown. Thus there are no economic reasons for the crown to strengthen to the level from before the intervention,” the article said.

The Czech central bank launched its intervention regime in November 2013 to avert deflation risks and help the economy.

Exporters will probably have pre-sold euros before the exit to hedge against future appreciation, Tomsik said, and that would work against the crown’s strengthing after the exit.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza