The Czech Republic, Hungary, and Romania are at risk of a currency crisis next year due to growing budgetary and external problems, analysts of the Japanese financial group Nomura Holdings predict.
The warning is based on an analysis of eight indicators, including the ratio of foreign exchange reserves to imports, short-term interest rates, and budget and trade indicators.
According to the report, vulnerabilities in emerging market currencies are now at their highest level in more than 20 years. Analysts said that Egypt, Sri Lanka, Turkey, and Pakistan have already experienced currency crises. At the same time, they pointed out that these countries are still facing problems.
This year, the Hungarian forint has been one of the worst-performing currencies in emerging markets, and disputes surrounding finances from European Union funds have contributed to its sharp decline. The Czech koruna and the Romanian lei have also weakened significantly this year.
Central banks across Central and Eastern Europe have raised interest rates dramatically to curb inflation and stabilize their currencies, but these efforts have had only limited effect on taming the crisis.
As expected, the Banking Council of the Czech National Bank (ČNB) left the base interest rate at 7 percent at the beginning of November. ČNB Governor Aleš Michl stated after the bank board’s decision that the central bank will continue to prevent excessive fluctuations in the exchange rate of the koruna.
According to analysts, in September, the ČNB spent €2.6 billion on interventions to support the koruna, and since May, it has spent €25.5 billion. That is roughly 16 percent of peak foreign exchange reserves, as recorded in April this year.