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Skip Navigation LinksHome :: Markets/asset classes :: Foreign exchange :: Cabinet to analyse local currency developments.

Tuesday, July 22, 2008

Cabinet to analyse local currency developments.





Cabinet to analyse local currency developments. The government is to analyse the extraordinary developments of the domestic currency – the CZK is overvalued vis-à-vis both the EUR and the USD, and possibly take steps to counterbalance these developments, PM Mirek Topolanek announced. Topolanek views the currency continuous appreciation as a short-term problem, for which the government has no solution. Topolanek is confident that the strong exchange rate would not hamper the development of the economy in the long run; it is also linked to certain speculative purchases and potential euro adoption. Topolanek stated the government is not likely to propose the central bank possible intervention. The appreciating CZK (by 18.7% y/y against the EUR and by 29.2% y/y against the USD on Jul 21) is viewed by the central bank as the major anti-inflationary factor and central bankers might be reluctant to intervene in order not to overshoot the inflation target further. On the other hand, exporters and tourism sector agents are complaining about the strong domestic currency. As recalled, the finance ministry and the central bank agreed in April on measures aimed at preventing further appreciation of the exchange rate. One of the measures is that the privatisation receipts will be deposited into a special foreign currency account. In case that the government wants to draw from privatisation receipts, it will do it via foreign exchange swaps, which will have no effect on the exchange rate. The money from the EU structural funds will be a subject of regulated conversion regime as well. The ministry will issue bonds primarily in foreign currency to prevent excess and all operations of the public sector will be designed to support central bank’s sterilisation efforts.







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