Bloomberg News

Koruna Weakens for Third Day on Czech Economy, Spanish Bank Risk

June 12, 2012

The koruna weakened for a third day as Czech inflation and gross domestic product data fueled speculation the central bank will cut interest rates this month and after Fitch Ratings downgraded 18 Spanish banks.

The Czech currency depreciated 0.7 percent to 25.708 per euro by 4:48 p.m. in Prague, making it the worst performer among emerging-market peers tracked by Bloomberg today.

Anti-inflationary risks are prevailing in the Czech economy because of declining demand, central banker Lubomir Lizal said in an interview yesterday after data showed inflation slowed in May to below the Czech National Bank’s forecast. A June 8 report showed the country’s recession deepened in the first quarter, fueling speculation rates will be cut as soon as this month.

“We expect the CNB will lower rates by 25 basis points, probably as soon as at its next meeting on June 28,” Vaclav France, an economist at Raiffeisenbank AS in Prague, wrote in a report to clients today. “We share Lubomir Lizal’s opinion that anti-inflationary risks prevail.”

Gross domestic product shrank 0.8 percent in January to March from the previous three months, the third consecutive quarterly contraction and the steepest in almost two years, the statistics office in Prague said on May 8.

European and U.S. shares erased gains and most emerging- market currencies weakened as the yield on Spain’s benchmark 10- year bonds climbed after Fitch Ratings downgraded 18 of the nation’s banks.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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