The Czech currency is the strongest against the euro in the last 14.5 years. On Friday, it strengthened to 23.69 CZK/EUR. The last time it was this strong was before the economic crisis that broke out in the fall of 2008. However, according to economists, no similarly dark scenarios are imminent this time.
The koruna has been strengthening against the euro since mid-November last year. The last time it was this strong was in July 2008, when it strengthened up to 22.97 CZK/EUR. However, in autumn came a great economic crisis, which was felt by practically the whole world.
The Czech currency is now the strongest in the last 14.5 years, when it strengthened to 23.69 CZK/EUR on Friday. However, according to experts, a similar crisis as more than a decade ago is not imminent.
The reason for the strengthening is mainly the growth of interest rates. “The koruna is strong thanks to the fact that the previous composition of the Czech National Bank (ČNB) started responding to inflation in time by raising interest rates, which are now higher than abroad,” economist Pavel Peterka explained to TN.cz.
“Nevertheless, the CNB as such has been declaring for several months that it will prevent excessive fluctuations of the koruna, which in practice means that it will not want to allow it to weaken significantly,” added Peterka.
This is precisely what caused the Czech currency to be of great interest and thus demand increased. The crown is also strengthening thanks to this. “It is tempting for foreign investors to buy Czech assets, where they can achieve a higher appreciation than in the case of various other assets in the eurozone. In order to be able to buy Czech assets, they must first buy crowns,” explained economist Štěpán Křeček.
“Krone assets offer interesting returns, which supports interest in the koruna, which is also reflected in its strong exchange rate,” noted Peterka.
We are already in a crisis
According to Křeček, the Czech Republic is already in a certain crisis. “Our economy has entered a technical recession and this year will probably be one of non-growth, or in some quarters of the year we will witness a decline in our economy. So basically the crisis is here with us“, he zoomed in.
However, this is not unusual within the countries of the European Union (EU). “We are a small currency in an emerging market. Those small currencies suffer because of more volatility. When something extraordinary happens, like the start of a war or a pandemic, the weaker currencies tend to weaken. But when the situation calms down, the energy crisis subsides and through the war, investors learned to live on the market, so there is more certainty at that moment. And then investors are not afraid to enter smaller currencies,” outlined Křeček.
It is profitable
Extra strong crowns can also be used by people. “Especially those who, for example, are planning a holiday abroad or want to shop abroad,” Křeček is clear.
“A strong koruna is advantageous for importers, on the contrary, it is negative for exporters,” added economist Petr Studnička.
A turnaround will come
According to economists, however, it is necessary to expect that the koruna will weaken again. “Within the global economy and the Czech one, we expect a slowdown that will be a consequence of the negative effects of the conflict in Ukraine and the energy crisis. We expect a slight weakening of the koruna against the euro during the year,” Peterka is convinced.
“The exceptionally strong course we are seeing now will not be with us forever,” concluded Křeček.
The Czech National Bank kept the interest rate at the same level. See what an economist has to say about it:
TN.cz
