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The Czech Koruna is in Decline. The Czech Central Bank and Poland are to Blame. 

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The Czech koruna has recently experienced a further decline in its value. This depreciation is influenced not only by the recent decision made by the Czech National Bank (CNB) but also by actions taken by the central bank of neighboring Poland.

Over the past week, the Czech koruna has faced significant downward pressure in its exchange rate against the euro, exhibiting noticeable weakening. During Tuesday’s trading session, it reached a low of 24.60 per euro, marking its weakest performance in nearly a year.

This rapid depreciation brings the koruna closer to levels at which the CNB actively purchased the currency last summer to prevent it from further devaluation—a move publicly endorsed by the CNB. However, the koruna currently lacks the backing of such interventions by the central bank. During its latest meeting, the CNB officially terminated its interventions aimed at supporting the koruna.

Jan Bureš, the Chief Economist at Patria Finance, remarked, “With the conclusion of the CNB’s intervention commitment, we anticipated the koruna to become more vulnerable and weaker over the long term. The initial depreciation occurred shortly after the formal end of the commitment in early August. In recent weeks, the koruna seemed to stabilize at a new post-intervention level around CZK 24.20 per euro.”

Nevertheless, Bureš noted that recent developments suggest that the domestic currency is even more susceptible to external factors. The koruna’s depreciation was initiated last week, triggered by a surprise decision from the Polish central bank (NBP), which reduced interest rates by 0.75 percentage points to six percent. This unexpected move led to a swift depreciation of the Polish zloty, which, in turn, had a negative impact on the koruna.

Bureš added, “From the perspective of significant foreign investors, the Central European region is traditionally perceived as a unified entity. Consequently, some investors may mistakenly assume that the CNB might adopt a similarly aggressive stance as the NBP. However, we believe this is not currently a consideration. Moreover, the koruna is not benefiting from a stronger U.S. dollar, which generally does not favor high-risk assets, including regional currencies.”

On the other hand, Miroslav Novák, an analyst at the foreign exchange company Akcenta, acknowledged that the koruna’s ongoing depreciation can be attributed to financial markets factoring in potential future interest rate cuts by the CNB into the exchange rate. He also pointed out that the koruna is being affected by apprehensions preceding the upcoming meeting of the European Central Bank (ECB) later this week. There is a possibility of another rate hike by the ECB, which could make the koruna less appealing to investors due to the diminishing interest rate differential between currencies.



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