Czech currency and the Euro

Czech Crown broke its maximum yesterday when it was traded 28.09 CZK for one Euro. The record against the USD was not beaten but the difference was only one hundredth of one Crown.

The strong currency can be explained by various factors. There is certainly the favourable macroeconomic situation including the rapid growth combined with a stable inflation. Another “culprit” is the surplus of the visible trade. Other cited factors include possible speculation as well as the decision of the the US Fed not to raise its interest rates any more due to the unexpectedly slow growth of American GDP.

The experts believe that the value of the Czech currency should stay around the current numbers. The outflow of dividends as well as the relatively low interest rates in the Czech republic as compared with the ECB and also the lack of political stability may all prevent further appreciation.

This recent appreciation makes Czech exporters worried and may thus lead to worsening of the trade balance. On the other hand, Czech tourists and importers have every reason to be pleased. The same holds for users of cars since the strong currency dampens the growth of oil prices.

The adoption of the Euro may be moving away from the planned year 2010. The reason is the lack of political stability, which is needed to prevent soaring government deficit that is expected to be well above the Maastricht criterion needed for the replacement of the Czech crown with the Euro.