The Czech koruna has been steadily appreciating against the euro for several months now and recently broke the threshold of CZK 23.50 per euro for the first time since July 2008. This is a significant milestone for the currency and shows the growing confidence of investors in the Czech economy.

Trinity Bank’s chief economist, Lukáš Kovanda, has noted that the koruna’s appreciation this year is part of a larger trend that has seen the currency performing well in recent years. According to Kovanda, the koruna has broken the CZK 23.50 level only 14 times since the koruna-euro pair began trading in 1999, mostly during the summer of 2008 when it reached an all-time high.

The current strong performance of the koruna can be attributed to several factors, as noted by Jakub Seidler, chief economist at the Czech Banking Association. One factor is the positive global sentiment towards the Czech economy, which has been growing in recent years due to its strong macroeconomic performance and business-friendly policies.

Another factor is the interest rate differential between the Czech Republic and other countries, which has made the koruna more attractive to foreign investors seeking higher returns on their investments. In addition, the Czech National Bank’s past interventions in the currency market have also helped to boost investor confidence in the koruna.

Despite less positive fundamentals and a significant balance of payments deficit, the koruna continues to strengthen, which is a testament to the resilience of the Czech economy. The strong performance of the koruna is good news for the country’s exporters, who stand to benefit from a weaker currency, but it may be a cause for concern for policymakers who may need to intervene to prevent the currency from becoming too strong.

Overall, the koruna’s recent appreciation is a positive sign for the Czech economy, which has been growing steadily in recent years. As the country continues to attract foreign investment and build a reputation as a business-friendly destination, we can expect to see the koruna continue to perform well in the months and years ahead. However, policymakers will need to keep a close eye on the currency to ensure that it remains at a level that is beneficial for the overall health of the economy.

Article by Prague Forum