The koruna weakened, headed for the biggest monthly drop against the euro in almost two years after Czech policy makers said risks to its economic forecasts are tilted “significantly” toward lower interest rates.
The Czech currency depreciated as much as 0.6 percent and traded 0.2 percent weaker at 24.697 per euro as of 4:27 p.m. in Prague. The koruna has lost 2.5 percent this month, the most since October 2009, and weakened 1.4 percent this quarter.
“We expect the Czech National Bank’s policy rate to remain unchanged at 0.75 percent until the beginning of 2013,” Jaromir Sindel, a Prague-based economist at Citigroup Inc., wrote in a report to clients today. “However, if the koruna resumes its appreciation, we would expect the CNB to act.”
Investors in interest-rate derivatives raised bets funding costs will drop after the central bank said spending cuts abroad may hurt demand for Czech exports, according to minutes from the Sept. 22 meeting published today. Global stocks fell as reports showing contractions in Chinese manufacturing and German retail sales added to concern global growth is slowing.
“The risks of the forecast were tilted slightly towards lower inflation and significantly towards lower interest rates,” the minutes said. Fiscal austerity in developed economies “might have a negative effect on economic growth,” they said.
Forward-rate agreements fixing three-month interest costs in nine months fell to as low as 0.99 percent today, the lowest mid-price since Bloomberg started tracking the data in 1997, from 1.02 percent yesterday and 1.78 percent three months ago. The nine-month FRA traded 19 basis points below the three-month Prague Interbank Offered Rate, to which it settles.
Policy makers on Sept. 22 left the benchmark rate at a record-low 0.75 percent, half of the European Central Bank’s main rate, and signaled they may ease policy as the euro area’s sovereign-debt crisis worsens the economic outlook and intensified downside inflation risks.
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