External factors continue to still negatively impact the development of Czech koruna and its current level does not correspond to the favorable development of the Czech economy and increasing interest rate differential towards the euro area. Given the five 25 basis points hikes of the main CNB interest rate in the prior year, the EUR/CZK would have been expected to now be close to the level of 24, and not close to the current 25.70.
According to an Erste Group Research report, the koruna is likely to start appreciating again from the second quarter of 2019. Nevertheless, the risk is still higher than usual. A softer external environment and more dovish interest rate outlook in the euro area suggest the koruna appreciating to a lesser extent, towards 24.8 by the end of 2019.
“However, in the event of hard Brexit, we would expect depreciation of the koruna well above 26 EUR/CZK, with later correction to current levels by year-end”, added Erste Group Research.
