Utility defends hedging against crown's rise

23.04.08 15:58 Filed in: The Prague Post
?EZ’s impact on currency exaggerated

Earlier this month, reports surfaced that the state-controlled energy giant, ?EZ, had contributed significantly to the precipitous rise of the crown by converting billions of euros to crowns to hedge its currency risks.
?EZ is not looking to make money off the crown; it is just trying to protect itself against a general trend, said ?EZ spokeswoman Eva Nováková. The company receives many of its payments in euros.
“Every company whose financial results are dependent on the exchange rate of the crown against the euro insures itself against exchange rate fluctuations,” she said.
Nováková said she could not comment on specific transactions because of the ongoing nature of the operation.
“No single market participant is able to reverse the general macroeconomic trend,” she added. “?EZ does not act as a market player betting on the exchange rate, but as a market participant like every other exporter in the Czech Republic.”
A report on ?EZ’s hedging first appeared earlier this month in E15, which said the company had spent more than 3 billion euros in the past nine months to buy in excess of 70 billion K?, at an average rate of 27 K? per euro.
This hedging exerted considerable upward pressure on the currency, since the total average trading volume reaches only about 2 billion K? a week, the newspaper claimed.
Vojt?ch Benda, a senior economist with ING Wholesale Banking, disagreed with the paper’s assessment.
“The extent of ?EZ’s influence on the exchange rate has been exaggerated in media reports,” he said.
Benda attributed the crown’s strengthening to worldwide financial turbulence.
“At a time of uncertainty over the development of world markets, the crown remains a relatively calm and secure haven,” he said.
In addition, the economy is strong and foreign trade is doing fine, and the screws have not yet been tightened on foreign investment, he added.
Still, the public and media are jittery over the crown’s continuous stride uphill, and any activity on the currency exchange markets is coming under increasing scrutiny.
For example, a single transaction was all it took to spark a sudden spike in the crown’s value during the night of April 14. An anonymous Australian investment fund bought crowns worth one million euros at the rate of 23 K? per euro, said market insiders.
That shot the exchange rate to 23 K? against the euro for the first time ever, if only for a brief time. The exchange rate quickly returned to its more traditional value of 25 K? per euro.
To help corral the crown, the Czech National Bank came to an agreement with the Finance Ministry April 9 on a deal to “limit the unwanted influence of public-sector operations on the currency exchanges and on the macroeconomic stability of the Czech Republic,” according to a ministry release.
The timing is coincidental, but the message is clear.
“What makes the Czech National Bank nervous is not the strengthening of the crown itself, but that the crown fails to behave completely in line with the prognosis,” Benda said.
Will the crown break with the previous trend of consistent and balanced appreciation, or is this only a temporary deviation? These are some of the questions raised by recent market activities, Benda said.