Our Managing Partner tells Bloomberg: Koruna Cap May End in ‘Tactical Surprise’


January 18, 2017

David Vavra, our Managing Partner who has advised a list of central banks globally, gave a rare, exclusive interview to Bloomberg, telling the international news agency that the Czech National Bank may remove its formal commitment to limit koruna gains "sooner rather than later” while maintaining “heavily managed” currency for some time. 

David, former chief economic forecaster at the Czech central bank, provided our outlook for the Czech koruna against the euro, saying after formal cap of 27/EUR is removed, OGResearch expects koruna to gain to levels between 26-26.5/EUR by end-2017 in “controlled appreciation”.

Following are the key excerpts from David's interview with Bloomberg journalists in Prague:

“There may be a tactical surprise, in which they discontinue the commitment but continue intervening,” says Vavra, managing partner at Prague-based OGResearch that advises central banks in eastern Europe and Africa. “What they really are seeking is to get rid of the commitment, not necessarily to exit from a heavily managed currency in the short term.”

Central bank’s balance sheet, expressed in FX reserves vs currency in circulation and vs GDP, is rising in “explosive manner”. 

“They cannot simply be immune to the forex reserves build-up because that means that the potential losses from holding these FX reserves would be catastrophic, in the sense that they will never be paid off through currency in circulation.”

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