|

CNB Rusnok: should the koruna dramatically weaken

Headlines

CNB Rusnok: should the koruna dramatically weaken after the (koruna) exit, we can sell EUR from FX reserves

CNB’s offensive in Czech media has continued in recent days and hours. The key figure, who is making headlines, is definitely CNB Governor Jiří Rusnok, who has already given several interviews to Czech economic dailies explaining the central bank strategy following its exit from the current intervention regime. From the market point of view the most interesting Rusnok words have been printed this morning in E15 daily. While Jiri Rusnok confirmed that the exit could easily be put off until 2018, he also repeated the current CNB mantra that the use of the exchange rate (targeting) would probably be discontinued in mid-2017 (while the CNB would keep its promise to defend the EUR/CZK 27.0 floor until the end of 2017Q1). The most interesting Rusnok’s statement was, however, his answer to a question whether the CNB might actually sell its euros (from huge FX reserves), if the koruna unexpectedly weakens after the exit. Rusnok said the CNB had a lot of FX reserves (mainly in euros), so if the koruna dramatically weakened, the central bank could appear on the market and sell some euros to make a profit.

Is such a situation realistic? Actually, we think that the most probable scenario is that the koruna will strengthen on an exit-day. However, the exchange rate is likely to be very volatile, and we cannot even rule out temporary depreciation of the Czech currency. However, we doubt that there could be a swift intervention on the other side from the CNB. In our view should the CNB be involved (motivated to sell EUR) the EUR/CZK pair would have to trade somewhere above the 29.0 level – or the koruna should be weaker by around 8% from the current levels. From the fundamental point of view such a CZK weakening would be not warranted as we see the EUR/CZK equilibrium rate much lower (see the chart ).

EURCZK
Currencies % chng
EUR/CZK27.010.0
EUR/HUF308.10.3
EUR/PLN4.320.1
EUR/USD1.09-0.4
EUR/CHF1.080.3
FRA 3x6%bps chng
CZK0.280
HUF0.680
PLN1.73-2
EUR-0.300
GB%bps chng
Czech Rep. 10Y0.410
Hungary 10Y2.92-3
Poland 10Y2.950
Slovakia 10Y0.492
CDS 5Y%bps chng
Czech Rep.410
Hungary1220
Poland760
Slovakia420

Download The Full European Economic Review

Author

KBC Market Research Desk

KBC's Market Research Desk publishes a number of short-term reports.

More from KBC Market Research Desk
Share:

Editor's Picks

AUD/USD flirts with 0.7000, lowest since early August amid bullish USD

AUD/USD hits a fresh low since early August during the Asian session on Friday and looks vulnerable near 0.7000 after breaking below the 200-day SMA overnight. Against the backdrop of the hawkish Fed, a two-day rally in oil prices revives inflation fears and continues to push US bond yields to multi-year highs. Adding to this, geopolitical risks lift the US Dollar to a two-month high, overshadowing RBA rate hike bets and weighing on the pair.

USD/JPY pulls back from three-week high after failing near 159.00

USD/JPY edges lower during the Asian session on Friday, stalling its recent strong move to a three-week high of 159.00 as Japanese Yen bears turn cautious amid intervention fears. Meanwhile, the US Dollar retains a strong bullish undertone as the Fed's hawkish outlook and oil-driven inflation fears continue to push US bond yields to multi-year peaks. Furthermore, the BoJ's dovish rate hike last week might cap JPY and support spot prices.

Gold treads water below $4,300

Gold grabs some buying attention and advances marginally at the end of the week, partially retracing the weekly decline, although it is still navigating below the key $4,300 mark per troy ounce. The fresh selling bias on the Greenback and the modest decline in US Treasury yields appear to support the humble advance in the precious metal.

Crypto Today: Bitcoin and Ethereum edge lower, XRP extends recovery as macro headwinds weigh

The broader cryptocurrency market is consolidating on Friday, with Bitcoin paring losses slightly above $84,000. Ethereum declines in tandem with BTC. Ripple (XRP), meanwhile, paints a different picture.



Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which
The Federal Reserve (Fed) and the Bank of Japan (BoJ) have just done something remarkably similar. Both central banks raised interest rates by 25 basis points (bps) last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.
Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.