The koruna continues to strengthen, and on Wednesday, it settled below CZK 23.8 per euro, where it remained on Thursday morning. The Czech currency is thus the strongest against the European one since the end of July 2008. According to Jakub Seidler, chief economist at the Czech Banking Association (CBA), it may still strengthen further, but the outlook is for it to return above CZK 24.5 per euro.
At 10:30 on Thursday, according to Patria, the koruna was at CZK 23.748 per euro, more or less the same as on Wednesday afternoon.
Jakub Seidler, the CBA’s chief economist, noted that the koruna was relatively close to its historical high from mid-July 2008 when the exchange rate was below CZK 23.
According to Seidler, there are several reasons behind the appreciation of the Czech currency, which has been going on for several weeks. “At the end of last year, global sentiment turned around, and investors started to return to the region (Central and Eastern Europe). The Czech National Bank (CNB) intervened from May to October to around CZK 650 billion also played a role. Although the CNB has been absent from the market for several months, the significant volume of interventions has affected the foreign exchange market for a longer period,” he said.
The interest rate differential against the euro also contributes positively to the exchange rate. Although this gradually decreases as the European Central Bank raises interest rates, the differential is still sufficiently attractive. Last but not least, the domestic economy is doing better than others, again increasing interest in the koruna from foreign investors, Seidler added.
The koruna will remain vital for extended periods and could potentially even strengthen. However, he does not expect it to fall below CZK 23.5.
Lukáš Kovanda, the chief economist at Trinity Bank, is soberer about further appreciation of the koruna. “It is more likely that the Czech currency will give back some of its gains. At the end of March this year, the koruna should be at 24.20 against the euro and even at 24.35 at the end of June, according to the analytical consensus as captured by Bloomberg. At the end of this year, the euro should be worth as much as 24.50 koruna, he said.