FX Talking: EUR/CZK (Euro To Czech Koruna), EUR/RON, EUR/HRK
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EUR/CZK
CNB determined to further defend koruna
Current spot: 24.65
• Czech National Bank continues FX intervention and keeps the koruna close to EUR 24.75/CZK. Based on our calculations, the central bank has sold roughly EUR9bn since the beginning of May, equivalent to 5.8% of FX reserves at the end of April.
• At the same time, FX interventions are becoming more costly, suggesting that the situation will become more complicated for the CNB. Although the CNB has some of the largest FX reserves relative to GDP in the world, the nominal volume is not that large.
• However, this looks more of an issue for the fourth quarter. Until then, we expect no change in the current situation. Testing the CNB’s resolve will not give investors enough reward for the expensive cost in shorting the koruna.
EUR/RON
Untouchable threshold
Current spot: 4.9441
• The NBR recently raised the key rate by 100bp to 4.75% in response to rising inflation, which we expect to exceed 15% in June.
• This leaves Romania with the most negative real rates not only in the region but almost in the entire EM space. Catching up with peers in the region is very likely to demand further rate hikes and the pace of moves may continue to accelerate.
• We continue to expect the NBR to hold EUR/RON below 4.95 until at least the end of this year. Moreover, inflationary pressures are rising, which should strengthen the central bank's resolve to keep FX stable given the large FX passthrough to inflation in Romania.
EUR/HRK
One step closer to the euro world
Current spot: 7.5175
• At the end of June, the European Union summit approved the introduction of the euro in Croatia. The country will become the 20th member of the euro area from January 2023. The use of the euro in Croatia will be formally confirmed in July by finance ministers.
• The report was followed by Moody's announcement of a possible two-notch upgrade to Baa2 in the event of a positive outcome of the EU negotiations.
• The FX rate at which euro adoption will take place will likely be very close to the 7.5345 central parity rate at which Croatia was included in the ERM-II.
• Due to the likely approval of euro adoption, we will cease coverage of HRK in FX Talking from the next issue.
EUR/RSD
Concerted effort to minimise inflationary pressures
Current spot: 117.35
• The NBS raised the key rate by 25bp to 2.75% in July, disappointing market expectations. In a statement, the bank said it wanted to continue to fight inflation but at the same time it had to take into account the growth of the economy. At the same time, the central bank said that stable FX limits the pass-through to import prices and limits further inflation.
• The dinar has moved slightly below 117.50 since the beginning of June but remains stable and we expect this to continue with a possible further very gradual slide lower to coordinate interest rate and FX tools in an effort to minimize inflationary pressures.
USD/RUB
Intra-month volatility up, longer-term trend more stable
Current spot: 61.38
• Given the paralyzed capital account, ruble performance is becoming more volatile intra-month, with a strong 2nd half of the month during tax periods and sharp depreciations afterwards.
• Gazprom’s refusal to pay RUB1,2 tr ($20 bn) dividend limits the scope for RUB appreciation in summer, but the government’s decision to boost taxation on GAZP by RUB400 bn per month in Sep-Nov suggests that demand for RUB is merely postponed.
• With a current account surplus of $20-30bn per month, RUB is likely to tend to appreciate, but this should be offset by the recent decision to allow non-repatriation of FX export proceeds and possible restart of FX purchases in alternative FX (CNY?) – meaning a more even RUB performance in the medium term.
This article is a part of the report by ING Economics
Disclaimer
This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
