Koruna Slide Reveals Virus Strategy Risks in EU’s Top Hotspot
Koruna Slide Reveals Virus Strategy Risks in EU’s Top Hotspot
(Bloomberg) -- If the Czech koruna is a barometer of how the government is managing to contain the escalating coronavirus outbreak, then the results aren’t too encouraging for the country’s billionaire leader.
The koruna is the second-worst performer among emerging-market currency, after Turkish lira, since the start of September when the European Union member began reporting an accelerating pace of infections. In just over a month, the Czechs have become the worst-hit EU country when adjusted for population, with the two-week cumulative number of cases surpassing Spain and France.
“The exchange rate of the koruna is currently firmly in the grip of a severe second pandemic wave in the Czech Republic,” Melanie Fischinger, a Frankfurt-based analyst at Commerzbank AG, said in a note to clients. “Fears of a new lockdown put the koruna under pressure recently.”
The Czech currency is close to booking its seventh consecutive weekly loss while its regional peers, the Polish zloty and the Hungarian forint, are both heading for their second weekly advance even as the two countries are also recording rising Covid-19 cases.
Prime Minister Andrej Babis has pledged to avoid measure that would cause major damage to businesses like during the full lockdown in the spring.
Babis oversaw one of Europe’s most successful campaigns to stem the initial outbreak, imposing strict and early quarantine steps. After easing the restrictions in the summer, he had to tighten social-distancing rules again, mainly targeting leisure activities and the hospitality industry to limit contacts among people.
The escalating pandemic is increasing the likelihood that the central bank will use unconventional measures to ease monetary policy further, according to comments by two rate setters published in minutes from the Sept. 23 meeting.
The most probable scenario is still that the bank will keep rates unchanged, but the worsening situation is causing concerns among investors, Jiri Polansky, an analyst at Ceska Sporitelna AS, said in a note to clients.
“The markets fear negative macro impacts and are factoring in higher probability of a possible monetary-policy easing,” Polansky said.
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