* The Czech koruna depreciated over 4% yesterday
The Czech National Bank (Ceska Narodni Banka - CNB) yesterday approved the first sale of Czech korunas from its reserves in more than a decade, leading to a depreciation of up 4.4 of the Czech koruna (CZK) against the Euro, Bloomberg reports.
The Euro/ CZK exchange rate rose 3.2% in just four minutes, from 25.79 CZK/euro to 26.62 CZK/Euro, according to data provided by the press agency. After a slight drop, for seven minutes, to 26.5 CZK/euro, it resumed its rise, reaching a daily high of 26.97 CZK/euro, around 15:00.
According to Bloomberg, yesterday's depreciation of the Czech koruna is the greatest intraday move since 1999, when the agency began tracking the Euro/CZK pair. The performance of the koruna was the worst in a group of 31 currencies of emerging countries' economies, the quoted source says.
The officials of the Czech national bank yesterday said that they intend to intervene in order to keep the Euro/ CZK exchange rate around 27 korunas/euro.
The measure of the CNB represents an attempt to competitively devalue the Czech currency, but which will not yield the desired results, economic analyst Călin Rechea think. "It is an ineffective measure, which will only result in impoverishing the local population, considering that there is competitive devaluation going on all over the world", he said.
Competitive devaluation comprises actions by which a country attempts to weaken its currency, according to specialized literature. The problem with such a measure is that it encourages other countries to do the same, leading to a currency war, which limits any benefits gained through that action to a short period of time. Also, the depreciation of the local currency can generate inflation, canceling any increase in competitiveness over time, specialists note.
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