Government and Central Bank to fight strong koruna


On Tuesday, the Prime Minister Milos Zeman, finance minister Jiri Rusnok and the Czech National Bank governor Zdenek Tuma met to discuss a strategy to prevent further appreciation of the Czech crown, which is becoming a serious problem for Czech exporters. In a long term comparison, two years ago the crown stood at 37 crowns per euro and 42 crowns per US dollar, whereas now, it trades for around 32 crowns per euro and 35 crowns per dollar, respectively. Although no details of the deal have been provided as yet, the news of such an agreement was enough for the market to react, although the initial drop was soon compensated for by renewed moderate growth. The main cause of the crown's appreciation has been a massive inflow of foreign investment into the country in the past year. The privatisation of the Czech Republic's energy sector and the dominant telecommunications operator, Czech Telecom, are likely to bring more billions of USD this year. Economists see three possible ways to reduce the impact of foreign exchange privatisation revenues upon the exchange rate: Firstly, the Central Bank could buy up a certain amount of the foreign exchange from the government for Czech crowns. Second, the government could retain part of the privatisation income for future foreign exchange expenditures. And finally, foreign investors could pay partly in Czech crowns.