RPT-POLL-Czech crown seen staying near 28/EUR within 3 mths

...

The Czech crown is seen holding steady near 28 per euro in the next three months, but will resume firming and set new record highs a year from now, a Reuters poll showed on Monday.

The median forecast of 18 market watchers surveyed between May 17 and 21 was for the crown to trade at 28.10 to the euro in one month and 27.95 in three months, slightly firmer from late Monday's levels around 28.170.

The forecasts were little changed compared with a similar poll last month [ID:nL17462429].

"We suspect strong dividend outflows will peak in June and July, resulting in a temporary depreciation of the crown against the euro," said Vojtech Benda of ING, who saw the crown at 28.30 to the euro in one month.

"In the second half of the year, the crown should return to its medium-term appreciation trend, supported by a narrowing of the negative interest gap to the ECB (European Central Bank) and accelerating FDI (investment) inflows," he added.

Analysts also stuck to forecasts the crown would regain strength later this year, reflecting the country's catch-up in price and wealth levels with richer West European countries.

Within the next six months, the crown is expected to edge up to 27.70 to the euro, and rise to new highs at 27.20 in a year from now, the poll showed.

The six-month estimate was unchanged and the one-year view shifted only marginally in favour of a stronger crown versus the previous poll taken between April 13-16.

The crown reached a record of 27.41 against the euro late last year and matched it again early this year.

At 2.50 percent, the main Czech policy rate has been the lowest in the European Union and third lowest among developed economies after Japan and Switzerland. It has held a record 125 basis points below the euro zone equivalent.

The low-yielding crown has become an attractive funding unit for investment in higher-yielding central European currencies, such as the Slovak crown or Polish zloty .

But markets widely expect the central bank (CNB) to raise interest rates by 25 basis points as early as May 31, and keep tightening credit costs in the second half of the year, to keep inflation at bay in the booming economy.

CNB Vice-Governor Ludek Niedermayer told Reuters on Monday that interest rates need to rise soon, unless the crown currency firms enough to contain inflation [ID:nL21519402].

Keywords: CZECH ECONOMY/CROWN

[PRAGUE/Reuters/Finance.cz]