All down for the crown?
The Czech crown has plunged against the euro and US dollar in recent weeks on fears over the health of the local and Central European economies. It has fallen 10 percent against the euro and 19 percent against the dollar so far this year, making Czech exports cheaper but foreign holidays more expensive. I asked Patria Finance analyst Tomáš Vlk how low the crown can go and whether the slide is good or bad news for the future.
Will it go weaker than 30 to the euro or do you think it will hover around there?
“Well despite this negative short term outlook I think that the crown should trade around 28 or 29 crowns per euro in the months to come. The rate is already very far from its equilibrium and this already brought some verbal intervention from one of the central bankers so I do not see further weakening of the crown.”
And against the dollar, is the outlook similar?
“Yes, the outlook is more or less similar. Of course, it depends on the euro-dollar rate as to where the exact rate will be. Any movement of the euro-dollar rate brings more volatility for the crown-dollar rate.”
But generally do you see the crown stabilizing at current levels against the dollar or is there room for it to strengthen or weaken?
“The crown may strengthen against the dollar as the dollar will probably correct its significant gains against the European currency.”
Generally, the weakening of the crown against both the dollar and euro in recent weeks, is that a good or bad thing for the Czech economy?
“For now, I do not think this movement is bringing major problems for the Czech economy. Usually a weakening currency brings more inflation through imports but right now inflation is not a problem for the Czech economy and the outlook is still for very low inflation, so the problem is not that bad. On the other hand, the weaker currency is advantageous for Czech exporters and will increase their competitiveness on foreign markets.”
