Positive fourth quarter GDP results plus ongoing foreign direct investment inflow have been a strong stimulus for the Czech crown’s exchange rate. Early on Tuesday, CZK came close to touching the 34.0 level, which had been considered by many analysts critical with respect to the ČNB´s tolerance of the development. And indeed, only little time elapsed before central bank Vice-Governor Oldřich Dědek verbally intervened. "I personally think the strengthening (of the crown) is too strong," told Mr. Dědek journalists during a banking & finance conference held in Prague. "We have no ambitions to reverse the long-term trend of the crown, but our goal is to smooth out sudden fluctuations...The option (of forex intervention) is here at our disposal", quoted Reuters the Vice-Governor. Later on Tuesday, Finance Minister Mertlík said in London that also the Czech cabinet considered the crown too strong and it would therefore back possible ČNB intervention against CZK. Next Thursday, the ČNB board is going to discuss monetary policy, to release its monthly economic situation report, and – last but not least – to propose a long awaited inflation target for 2002.
According to Reuters, The Czech Finance Ministry said in documentation for the cabinet meeting scheduled for Wednesday that a 40 billion crown bond designed to cover a large part of this year's planned state budget deficit would be issued on domestic markets. The issue would increase the total state debt to CZK 320.5bn. The gap between this year’s planned state budget deficit (CZK 49bn) and revenues coming from the bond issue should be covered with other state funds.
The Finance Ministry deputy Jan Mládek told the ČTK that the European Bank for Reconstruction and Development (EBRD) is ready to take a small stake in Czech natural gas importer Transgas. (In the case of Transgas, a “small” stake can well mean an investment of several billion crowns.) Mládek believes that Transgas's privatisation (in a block with eight regional distribution companies) can be realized as soon as this year. The government hopes to cash in about USD 5.2bn from the sale of Transgas and another Czech utility, power producer ČEZ. ČEZ is expected to be sold late this year or early in 2002.
On Tuesday morning, Czech crown hit an all-time high of 34.050 against the EUR. Following ČNB’s threat of intervention, CZK started to lose and weakened down to 34.38/43 in the afternoon. The crown/dollar went down to 38.45/48 from 38.16/20 late Monday.
Bond prices rose another day fueled by hopes for an ECB rate cut. The longest state 6.95/16 bond was up 39bps to 107.12/42, yielding 6.20/17 %. The state 6.75/05 rose 4 points to 104.51/81, yielding 5.42/34 %. Dealers think that only profit taking could stop ongoing slow growth of bond prices.
| late March 27 | bond yield | late March 26 |
| CZK/EUR | 34.37/40 | - | 34.16/21 |
| CZK/USD | 38.45/48 | - | 38.16/20 |
| State 6.75/05 | 104.51/81 | 5.42/34 | 104.47/77 |
| State 6.95/16 | 107.12/42 | 6.20/17 | 106.73/03 |
(Martin Kupka)