Czech Koruna Weakens as Necas Risks Budget Defeat: Prague Mover

The koruna weakened for a second day on concern Prime Minister Petr Necas will struggle to secure enough votes in parliament to pass a bill needed to reduce the budget deficit and on signs the global economy is slowing.

The Czech currency slid 0.6 percent, the most in more than a week, to 24.923 per euro by 2:45 p.m. in Prague. The koruna reached the strongest level in four months two days ago.

Necas yesterday urged lawmakers to back his plan to raise taxes, saying his administration would have no reason to stay in power if unable to meet its deficit-cutting target. After losing a majority in the lower house in April, the premier must now secure enough support to overturn a Senate rejection of the bill intended to cut the deficit below the European Union’s limit of 3 percent of gross domestic product next year. The vote will probably take place after parliament reconvenes on Sept. 4.

“The government coalition’s fragile majority, which depends on the votes of dissenters during parliamentary votes, constitutes a latent political risk for the koruna,” Carolin Hecht, a currency strategist at Commerzbank AG in Frankfurt, wrote in a report to clients today. “Should the vote in parliament fail, we might see an excursion towards 25.20.”

Stocks fell worldwide and most emerging-market currencies slid as economic data from Germany, Japan and South Korea added to concern the global economic growth is slowing. Exports account for about 75 percent of the Czech economy, with Germany the biggest buyer, according to data compiled by Bloomberg.

The koruna is still 1.7 percent stronger versus the euro since the end of July, making it the second-best performer among major emerging-market currencies tracked by Bloomberg. The government’s funding costs fell to an all-time low for the fifth consecutive bond auction yesterday as the currency’s appreciation this month fueled speculation the central bank will cut interest rates.

Czech bonds were little changed, with the five-year yield at 1.16 percent, within one basis point, or 0.01 percentage point, of all-time low reached two days ago, generic indexes compiled by Bloomberg showed.

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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