The Czech Republic faces the risk of a currency crisis, according to Nomura
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Vulnerabilities in emerging market currencies are now at their highest in more than two decades, giving a “dire warning” of growing broad-based risks, a Nomura report said.

The Japanese company bases its warning on an analysis of eight indicators that are part of the so-called Damocles index, which assesses the vulnerability of 32 emerging markets to a currency crisis.

Specific indicators are, for example, covering the import of foreign exchange reserves, real short-term interest rates or fiscal measures.

Egypt, Sri Lanka, Turkey and Pakistan have recently experienced their currency crisis and are still not completely out of it, Nomura analysts Rob Subbaraman and Si Ying Toh said in a note on Monday.

CNB Vice-Governor: Unlike, for example, Hungary, the Czech Republic is in an extremely comfortable situation

Economy

Of the trio of Czechia, Romania, and Hungary, the currency of Hungary in particular is not doing well this year. The forint has lost almost 19 percent against the US dollar since the beginning of the year. The Hungarian central bank is trying to cushion the weakening of the currency by raising interest rates, thereby also fighting against high inflation.

However, the currencies of Romania (leu) and the Czech Republic (koruna) also fell against the dollar this year. In the case of the crown, this is a drop of around eight percent. In recent months, the Czech National Bank has been significantly intervening on the foreign exchange market against further weakening of the koruna.

According to analysts, the CNB spent 2.6 billion euros (over 63 billion CZK) in September as part of interventions to support the koruna, and since May it has spent 25.5 billion euros (roughly 620 billion CZK) in this way. This is roughly 16 percent of foreign exchange reserves from their maximum volume in April this year.

The exchange rate of the crown to the dollar fell to 23.74 crowns on Monday. Against the euro, the currency strengthened to 24.33 CZK/EUR.

The koruna is the strongest against the euro since the beginning of the war

Economy

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