Investors betting on a jump in the Czech crown after the central bank scraps its cap on the currency this year may get burned as they are holding large long positions in shallow markets, central bank vice-governor Vladimir Tomsik said.
Tomsik told Reuters in an interview that investors have built up tens of billions of euros of long crown positions as the bank intervenes in the market to keep the crown on the weak side of 27 per euro, a level many see as undervalued.
The bank has kept the crown weak since 2013 to help revive inflation, and expects to end the policy around mid-2017. The timing is key for the investors betting on gains afterwards.
The bank says the crown will not return to pre-intervention levels around 25.50-70 because wages and inflation are outpacing the euro zone and the currency had been slightly overvalued in 2013.
The bank also plans to return to a managed-float after scrapping the cap, not letting the crown float freely.
5th March 2019