The Czech koruna depreciated for a second day as Deputy Governor Vladimir Tomsik signaled the central bank won’t tolerate currency gains during a recession.
The koruna weakened 0.3 percent to 25.687 per euro by 1:42 p.m. in Prague, paring its advance over the past month to 1.4 percent, the second-best performance among the world’s 31 major currencies monitored by Bloomberg, after the Japanese yen.
Excessive koruna gains would hamper an economic recovery, Tomsik said in an interview with Prague-based Hospodarske Noviny today, adding that he’s ready to sell the currency if looser conditions are needed. Inflation below the Czech National Bank’s target is boosting the case for an intervention, board member Lubomir Lizal said in an interview with Bloomberg News published yesterday.
“The CNB is again surprised by a slower inflation, and its next prognosis is probably going to further weaken its ideal koruna exchange rate,” analysts Jan Cermak and Jan Bures at CSOB AS in Prague wrote in a report to clients today. “Room for koruna appreciation is very limited at these levels. More likely is the currency will now test levels around 26.”
The koruna is 4.5 percent weaker than on Sept. 17, a day before the CNB first signaled readiness to sell the currency to avert deflation. The economy contracted for six quarters through March, prompting to central bank to cut its main interest rate to 0.05 percent last year and debate koruna interventions.
“If there is need to stabilize inflation expectations and maintain a low-inflationary and stable economic development, I am personally ready to use the next monetary-policy tool, which is undoubtedly currency interventions,” Tomsik was cited by Hospodarske Noviny as saying. “Excessive optimism could trigger disproportional strengthening of the koruna, which would only delay the economic recovery.”
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