Czech crown ends 2006 at 27.5/EUR, up 6 pct on yr

...Reuters in January only predicted for the end of 2007.

The crown was at 27.490 per euro by 1410 GMT on the last trading day of 2006, booking a nearly 6 percent gain over the year and becoming the second best performing currency in central Europe after its Slovak counterpart.

In a Reuters poll of 13 analysts taken in January the median forecast saw the crown at 28.30 per euro at the end of 2006 and at 27.50 at the end of next year.

"Overall, the crown is stronger than we had originally expected, and we will be revising our earlier forecasts towards a firmer crown level for next year," said Jan Vejmelek, head of economics and strategy research at Komercni Banka in Prague.

"Nevertheless, I would expect a certain correction in the currency's level during the first quarter of next year, towards 28 (per euro) ... As the central bank has been saying, it is difficult to find a reason for the crown to keep firming."

Many analysts have been puzzled by the currency's rise in late 2006 and cautioned that a deteriorating external deficit spoke in favour of a weaker currency, or at least a dampening of its prospects for a further advance next year.

Central bankers have said it was difficult to find economic reasons for a further crown firming and that balance of payments flows, particularly a deepening current account deficit, argued against any further gains in the currency.

The 12-month rolling current account deficit has doubled over a year ago to 4.6 percent of gross domestic product.

The crown's strength has led markets to expect stability of interest rates until at least March, following 75 basis points worth of hikes by the central bank between October 2005 and September 2006.

[PRAGUE/Reuters/Finance.cz]