The Czech koruna remains under pressure …
…as CNB governor reiterates its threats
The central European currencies moved very little on Friday. There were relatively big volumes traded on the Czech market and the koruna continues to stay above EUR/CZK 25.50 so far. Markets believe that the poor GDP figure for the third quarter of the year and the latest comments by Governor Singer have increased the risk of potential interventions against the koruna. This clearly nudged the Czech currency to weaker levels and the next important resistance level should be EUR/CZK 25.63. The CNB governor Singer confirmed in its interview that koruna will be important factor in further process of monetary policy easing.
Nevertheless, we believe that interventions are still likely at much stronger levels. Even though the fear of interventions, notably by foreign traders, significantly changed attitude of foreign investors to the koruna, we believe that interventions against the koruna are not really in the cards for the next while. Above all, Governor Singer spoke of needing to ease the monetary policy again, no sooner than the middle of 2013. In that event, the Czech National Bank envisages a decline in PRIBOR from today’s approximately 0.5% to 0.2%. With base rates at technical zero (0.05%), it is not really all that easy for the CNB to continue to push market rates further downwards. However, we can hardly bet on interventions now that the koruna is 1% weaker than the forecast and market rates will not start to diverge from the forecast until the second quarter of 2013.
Moreover, a switch from verbal to actual interventions may not at all be easy in practice either. Verbal statements do not cost the CNB much; however, defining, at least for its internal needs, a reasonable strategy of forex interventions, which would not sound like switching to a fixed exchange rate, will not be easy. This is why we believe that actual interventions would not be considered until the koruna starts to leave the 70-90% reliability ranges of the CNB forecast – i.e., close to CZK 24.50 per EUR.
|FRA 3x6||%||bps chng|
|Czech Rep. 10Y||2.05||12|
|CDS 5Y||%||bps chng|