The koruna will probably strengthen to near the highest level in 2009 against the euro as the Czech economy recovers and concerns ease that banks need more capital, boosting demand for riskier assets, Komercni Banka AS said.
Traders are ignoring Czech National Bank Governor Miroslav Singer’s threat to intervene for the first time in a decade to weaken the koruna and revive the economy as the currency extends the biggest rally in emerging markets after Hungary’s forint.
Record low Czech bond yields are prompting the Finance Ministry to consider raising funding for 2013 as early as in September to help cushion the eastern European Union nation from the euro-region’s debt crisis.
The Czech koruna may strengthen further as traders test the central bank’s resolve to take steps to support the economy by weakening the currency, said Jan Vejmelek, chief economist at Komercni Banka AS.
Bickering within the Czech Republic’s ruling coalition may prevent the government from overhauling state finances, undermining investor confidence that has helped the country’s bonds outperform German debt.
The Czech central bank will seek clues in its new economic outlook today about whether currency sales are needed to stimulate the economy after cutting interest rates to effectively zero failed to end a recession.