The koruna is the strongest since February this year. It already fell just below 25 crowns per euro last week, but after the announcement of April year-on-year inflation, the domestic currency strengthened even more against the euro. She gained roughly ten pennies and at noon the euro cost 24.79 crowns.
“The market has realized that the Czech National Bank will indeed reduce rates very slowly. This was also the reason why the koruna moved to the level where it was last on February 1,” explains the chief economist of the Creditas bank Petr Dufek.
According to economists, the April inflation results are a signal for the central bank to slow down in reducing the range of interest rates from half a percentage point to a quarter.
“The market’s expectations about how the Czech National Bank will react towards higher rates are changing. In response to the inflation data, the market reassessed its view on rates, which will be 0.2 percentage points lower in the Czech Republic in half a year, which is quite enough,” says the chief economist Cyrus Vít Hradil.
The exchange rate of the Czech currency is currently going against the trend of recent months, when – with the exception of April and May – the koruna weakened against the single European currency. The reason was primarily the estimate of the Czech National Bank (ČNB), which believed in a rapid decline in interest rates.
“The CNB has created an expectation that interest rates will fall rapidly in our country. At the last meeting, the CNB said that they will fall significantly more slowly than the forecasts indicated and than the market thought. This helped the koruna and brought it back below 25 crowns per euro,” Dufek explains, adding that further weakening of the domestic currency is not very likely.
The macroeconomic forecast of the Czech Banking Association assumes that the average value of the koruna should remain above 25 crowns per euro.
“At the end of this year, the forecast panel continues to estimate the strengthening of the koruna and the exchange rate around the level of 24.8 koruna per euro. Even in the case of the outlook for next year, none of the forecasts predicts a weakening of the koruna above the threshold of 25 crowns per euro,” the outlook states.
It is an opportunity when at least part of the money can be exchanged for a more interesting exchange rate before the vacation.
According to Hradilo, it is worth taking advantage of the more favorable exchange rate of the koruna. Before leaving for summer vacation, Czechs can buy euros more advantageously than in previous months. “It’s a pretty good course. I even think that the market reaction to today’s inflation was overheated, and I would rather expect it to develop in the opposite direction,” says Hradil.
“It’s an opportunity when you can exchange at least part of your money for a more interesting exchange rate before your vacation,” adds Dufek.
April inflation reached a value of 2.9 percent, which is 0.9 percentage points more than the March level. “The year-on-year inflation in April may thus represent a local maximum, with the fact that the year-on-year increase in consumer prices will immediately follow in May,” believes Radomír Jáč, chief economist of Generali Investments CEE.
Tags: koruna strengthening due inflation Czechs save money exchanging euros
