Final Word from Monday, September 2, 2019

When Gov. Jiří Rusnok spoke in Aug. 2018 of a "currency shock," the crown had weakened to as low as Kč 26.10 to the euro, which represented a depreciation off the high for the year of about 3%. We wrote at the time that this hardly constituted a "currency shock" and that Rusnok was exaggerating the issue as part of his effort to revalue the crown through interest-rate hikes. Rusnok used the situation at the time to justify a 25-basis-point increase in the CNB's key interest rate, to 1.25%, and he predicted that the higher interest-rate differential with the eurozone would push the crown beyond Kč 25/euro by the beginning of 2019. One year later, the crown is instead close to crossing the Kč 26/euro barrier. Despite a near-doubling of the interest-rate differential with the eurozone, the crown is approaching a post-devaluation record low. And the global trend is toward lower interest rates, which spells double trouble for the crown. A real "currency shock" could now be on the horizon. [ Czech Republic Great Devaluation VDČK Czech National Bank ECB European Central Bank ]

Glossary of difficult words

to revalue - to increase the value of (a currency) in relation to other currencies;

hike - a sharp increase, esp. in price or cost;

basis point - one hundredth of one percentage point (used chiefly in expressing differences of interest rates);

interest-rate differential - the gap in interest rates between two similar interest-bearing assets;

double trouble - twice the usual amount of difficulty (in this case, not only a weaker crown, but also lower interest rates, which discourage purchases of crowns).

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