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2019/01/28 / Erste Group Research

CZ Special Report: CZK will not remain weak forever

The Czech koruna remained weak during the second half of last year, contributing to higher proinflationary pressures in the Czech economy, which in turn encouraged the CNB to increase interest rates at a relatively quick pace. However, we see this development as non-standard and caused mainly by external and technical factors. In fact, given the favorable development of the Czech economy (its convergence path, five interest rate increases in 2018 and low macroeconomic imbalances), our estimates indicate that the EUR/CZK should be slightly above 24.0 now, that is, well below the current level of 25.7.

We expect the koruna to start appreciating again in the coming months. In our baseline forecast, the EUR/CZK should arrive at approx. 24.50 at the end of 2019 and at 24.0 by the end of 2020. Our forecast for the koruna is conditional on the assumption that the CNB will not invervene in the FX market. In this case, the Czech National Bank will hike only once in 2019, in our view, as the koruna’s strengthening will lower inflationary pressures.

However, if the countervailing factors remain important this year, the koruna could stay weak (e.g. between 25.50 and 26.0 or even weaker). Under such circumstances, the CNB will have to continue with a relatively high pace of interest rate increases to tighten monetary conditions adequately.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCzech Republic
Currency in focusCzech Koruna
Sector in focus-


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