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Upon the CNB's decision to cut interventions, Czech currency will further weaken

After the Czech National Bank announced the end of interventions to support the koruna, the Czech currency weakened significantly. During the week following this announcement, it weakened to the level of CZK 24.22 per euro - which is the highest value since the end of December 2022. And it is likely that it will fall further, as Miroslav Novák, an analyst at Akcenta, also predicts.


The Czech koruna has been weakening continuously since May - but given that this weakening was not sharp (three percent in three months), it did not attract much attention," Novák told to Novinky.cz. According to him, the formal end of the intervention regime will bring further weakening in the coming weeks and months.


The Czech National Bank has not intervened in favour of the koruna since October 2022. But just declaring that it prefers a strong koruna and is ready to intervene in this sense helped the Czech currency. However, the last meeting brought an impulse in the sense that with the receding inflation, the strong exchange rate of the koruna is no longer so important for the central bank," adds Novák.


When the CNB last intervened in favour of the koruna a year ago, its exchange rate against the euro was at the level of CZK 24.70 per euro. According to Novák, the exchange rate of the koruna could reach this value in the coming weeks.


However, in addition to formally ending the intervention regime, the Central Bank stated in its statement of August 3 that within the managed floating exchange rate regime, it will prevent excessive fluctuations in the koruna exchange rate that would threaten price or financial stability .


"That's why I think that if there was a significant and rapid weakening of the koruna towards the level of CZK 25 per euro, the CNB would quickly intervene and use its enormous reserves of foreign exchange reserves to buy the koruna," adds Novák.


Novinky.cz (8.8.2023)



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