The Czech koruna is traditionally considered to be the strongest among non-euro currencies in Central Europe.

Nevertheless, their significant appreciation in the past few days has come as a surprise.

If 24.80 crowns had to be paid for one euro last Friday, it was only 24.26 crowns on Wednesday and on Thursday afternoon the rate was 24.40 crowns.

The appreciation is all the more astonishing to observers as the comparison currencies, the Polish zloty and the Hungarian forint, lost value over the same period.

The crown reacted just as little to the sharp rise in the inflation rate to 17.2 percent in June as to the fact that the real interest rate in the Czech Republic is now minus 10.2 percent, well below that in Poland and Hungary.

While the euro against the zloty fell by as much as 3,

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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Analysts at the major Belgian bank KBC, which is heavily involved in Central Europe, have a simple answer: "As in the days before, there was a smell of CNB intervention." defend, even these days.

The starting point for the interventions was the surprising appointment of Aleš Michl as the new central bank governor on May 11th.

He had repeatedly voted against raising interest rates to combat inflation and thus rather for a looser monetary policy.

Along with the exchange of three other members of the seven-member Central Bank Council, there is now speculation about a course change by the central bank.

The reserves are melting away

Because the krone fell sharply in value after Michl's appointment, the CNB announced interventions.

According to estimates by the ING Bank, these have since amounted to almost EUR 18 billion, and the trend has recently been rising: preliminary data suggested that the National Bank spent almost EUR 9 billion on defending the crown in the previous week alone, as much as in May and June together.

ING analyst Frantisek Taborsky estimates that the central bank's foreign exchange reserves have shrunk by 11 percent since mid-May.

According to official data from the central bank, they were still 152 billion euros at the end of June, nine billion less than they were at the end of April.

The intervention costs a lot of foreign currency, says David Navrátil, chief economist at Česká spořitelna (Savings Bank), the largest Czech bank.

Without this, he would place the exchange rate of the crown “somewhere over 25 crowns per euro”.

ING man Taborsky suspects that the central bank is heading for a rate of 24.60 to 24.70 crowns per euro, everything else is driven by the market.

Beat inflation

Unlike before, it is difficult to estimate the course of the central bank.

On the one hand, inflation expectations are picking up.

Some expect consumer prices to rise by 20 percent soon due to rising energy bills.

According to previous thinking, this would trigger interest rate hikes.

The new governor refuses.

Two-thirds of inflation is imported, so the central bank cannot influence it.

On the other hand, Michl had promised to curb inflation.

Meanwhile, his new deputy governor, Eva Zamrazilová, sees inflation approaching its peak.

The effects of the tight monetary policy - the old council had raised the key interest rate by 1.25 points to 7 percent in its last meeting - are noticeable.

She failed to respond to a possible rate hike at the next regular Bank Council meeting on August 4.

Will the turnaround come in August?

Commerzbank analyst Tatha Ghose points out that Michl considers interventions to be a tried and tested tool for combating inflationary pressure caused globally.

A strong krone makes exports more expensive, but dampens the import bill and thus indirectly consumer prices.

ING man Taborsky sees the costs of the interventions as "reasonable," but calls the rate of increase in costs alarming.

In August and September, voices are therefore likely to increase calling for an end to the interventions or at least for an adjustment.

Ghose takes a more fundamental view of the matter: Support measures are a "sensitive matter", especially when a central bank has to assert itself quickly and decisively against speculators.

It is very risky when a central bank tries to decouple the exchange rate of its currency from fundamental economic data.

If interventions are the reason behind the krone's recent strength, "a drastic reversal could be imminent."