Czech trade surplus hits record, seen aiding crown

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The Czech Republic posted its largest monthly surplus ever recorded in March, higher than expected data showed on Wednesday, reinforcing the market's view the crown was likely to recover from recent falls later in 2007.

The monthly surplus in exports and imports of merchandise goods rose to 12.4 billion crown ($594.7 million) from 9.1 billion in March 2006, beating the market consensus forecast of an 11.2 billion crown surplus.

The crown inched up to 28.230 to the euro by 1155 GMT, bouncing off 2-month lows around 28.300 early in the day.

Several analysts upgraded or confirmed their bullish forecasts for the full-year trade surplus after the figures, saying Czech exporters were profiting from stronger expansion in the economies of main trading partners in the European Union.

"In light of the recent trends and strong growth momentum in the Euro area, we are revising upward our full-year 2007 forecast for the Czech trade surplus by 0.2 percentage point to 1.8 percent of gross domestic product (GDP)," said Ryszard Jakubowski, central European economist at JP Morgan.

The cumulative surplus for January-March stood at 37 billion crowns, or slightly over 1 percent of 2007 forecast GDP.

The crown has been stagnating in a range around 28 per euro since March and traded 3 percent weaker from record highs reached in late 2006 on Wednesday, as low interest rates lead investors to sell it for higher-yielding currencies elsewhere.

The central bank has held its main policy rate at 2.50 percent, the lowest level in the European Union and a record 125 basis points below the euro zone equivalent, for seven straight months thanks to benign inflation.

"We think that the low carry is beginning to make the crown as a tempting funding currency, which is likely to limit the appreciation of the currency," said Istvan Zsoldos, economist at Goldman Sachs.

But domestic analysts stuck to their view that the expanding trade surplus, and an expected gradual interest rate rise later this year to tame resurgent inflation in the booming economy, would help the crown overcome the yield disadvantage and regain ground in the second half of this year.

"Further growth in the foreign trade surplus should in the second half of this year play a key role -- together with a gradual narrowing of the negative interest rate differential -- in helping the crown return to a medium-term appreciation trajectory," said Vojtech Benda, economist at ING in Prague.

Ceska Sporitelna was keeping its forecast for 72 billion crown surplus in 2007 as well as the outlook that the crown would scale new all-time highs of 27.20 per euro by end-year.

INSTANT VIEW OF MARCH TRADE DATA...............[ID:nL09284340]

($1=20.85 Czech Crown)

Keywords: ECONOMY CZECH/TRADE

[PRAGUE/Reuters/Finance.cz]