By Mirka Krufova and Jana Mlcochova
PRAGUE, Dec 15 (Reuters) - The Czech crown is expected to
remain broadly flat in coming months, a Reuters poll showed on
Monday, but there is a risk of a drop as plummeting growth hits
exporters.
Fourteen analysts in the poll conducted between Dec 8 and
Dec 15 produced a median forecast for the currency <EURCZK=> to
firm slightly to 25.95 in a month's time from 26.150 on Monday.
It should remain around that level for the next three months
but this time next year, it was forecast to firm by 4.60 percent
to 24.95, still far off all-time highs of 22.925 seen in July
this year.
Miroslav Plojhar, an economist at JP Morgan, said the crown
was not being driven by investment flows to the extent seen in
Hungary or Poland, but rather by exporters and occasional fund
flows limiting rallies.
"There are exporters on the one hand who hedge themselves,
and on the other hand there are funds that in principle always
consider the crown as overvalued and jump in long (euro)
positions only if the crown has a rally," he said.
The latest Czech foreign trade and output data showed the
export-oriented economy, highly dependent on demand in the euro
zone, has been slowing faster than expected as exports to
recession-hit western Europe as well as Russia falter.
Companies in the automotive industry, the backbone of Czech
exports, have announced big drops in new orders, production cuts
and layoffs.
While the Finance Ministry and the central bank forecast
slight growth next year, some analysts including JP Morgan
predict a contraction.
The crown could break weaker if exporters stop hedging their
euro-denominated income, analysts said.
That could happen if the economy contracts, which would
weaken the currency and companies would have less of both
impetus and income to hedge.
Expected cuts in Czech borrowing costs are another factor
seen undermining the crown in the medium term.
"We believe that the central bank wants to support the
economy as quickly as possible and it's trying to do that by
cutting interest rates very quickly and it actually wouldn't
mind some depreciation," said Raffaella Tenconi, chief economist
at Wood &Co.
The key two-week repo rate stands at 2.75 percent after a 75
basis point cut in November and a Reuters poll shows markets
expect a 50 basis point cut at the next policy meeting on
Wednesday [].
"I think there's actually quite a high chance they will cut
a 75 at the coming meeting and they will continue with pretty
large cuts," Tenconi said.
Tenconi said the first half of 2009 would be the worst time
for central Europe, with growth expected to hit the lowest
levels and countries such as Poland and Romania seeing
difficulties with funding their current account deficits.
"After that is passed for the Czech Republic I think the
fundamentals remain compelling." she said.
For a TABLE with the poll forecast, click on []
(Editing by Stephen Nisbet)
