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data. A total of €16.5bn or so was used in the whole of last year in defending the cap.
"The currency obligation has fulfilled its objective," CNB Governor Jiri Rusnok told a press conference on April 6. Since the regime was introduced in 2013, GDP has grown by around 10%, he claimed, with 2-3pp stemming from the cap.
Those words were a reminder to the market that the regime was originally planned as a stimulus to the economy. Over the last couple of years, commentators have focussed almost entirely on its effects on inflation.
The regime helped boost Czech GDP to a heady 4.6% growth in 2015, while the country was the only one of the Visegrad Four to evade the deflation that has stalked the region. While economic growth slowed to 2.3% last year, it was the surge in the CPI from December that sent investors into a frenzy.
Although mostly surprised by the speed of the move, analysts largely expect the koruna to appreciate through the year to reach a level of CZK26-25.5 by the end of the year.
“The move came earlier than we and most others had antici- pated,” said Capital Economics, which had forecast the regime would last until May. “We will let the dust settle before
revisiting our forecasts, but as things stand we think the ‘fair value’ of the currency is around 25.5/€ (5.5% stronger than its current rate) and we expect it to settle around that level by year-end.”
“We forecast €/CZK at 26.50 for the second half of the year on average and 25.50 in 2018,” said Raffaella Tenconi at Wood
& Co. “Bigger currency appreciation in our view is unlikely as there is a sizeable bond positioning that will likely be gradu-
“The currency obligation has fulfilled its objective”
ally liquidated and beyond 3-4% appreciation a year the CNB will begin to question whether it is sustainable for the fun- damentals of the economy. We expect a mild rate tightening cycle to start in the second half of the year.”
"Overall, the fundamentals point to koruna strengthening in the medium-term," agree analysts at Oxford Economics. "How- ever, long koruna positions are estimated to be above €50bn
– an excessive figure for a relatively low liquidity market such as Czech."
5 – 8 July 2017
Corinthia Hotel Nevsky prospect, 57
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