Czech August Inflation Slowdown Bolsters Calls for Koruna Sales

Czech inflation (CZCPYOY) unexpectedly slowed for the second consecutive month in August, slipping further below the central bank’s target and bolstering the arguments of board members who want to sell koruna to ease policy.

The Inflation rate slipped to 1.3 percent from 1.4 percent in July, the Czech Statistics Office said in a statement today. It was below the 1.4 percent median estimate in a Bloomberg survey of 15 analysts and lower than the central bank’s 1.6 percent forecast. Consumer prices fell 0.2 percent from the previous month.

After three rate cuts exhausted room for traditional monetary easing last year, policy makers in Prague are debating whether price growth below their 2 percent target warrants the first currency interventions since 2002. Rate setters are assessing the strength of a rebound after the economy exited a year-and-a-half long recession in the second quarter.

“Inflation itself is an argument for further easing monetary conditions,”Radomir Jac, chief analyst at Generali PPF Asset Management AS, said by e-mail today. “But the bunch of recent data from the Czech economy, for instance GDP, industrial orders, retail sales and Manufacturing PMI, have provided arguments for the non-interventionist camp.”

Jac said he didn’t expect the central bank to start koruna sales at its next policy meeting on Sept. 26.

The koruna has depreciated 2.8 percent against the euro this year and traded 0.1 percent weaker at 25.813 per euro as of 10:30 a.m. in Prague, according to data compiled by Bloomberg.

The koruna has moved to the center of policy deliberations because depreciation would make imports more expensive and boost the competitiveness of exports, curbing deflation risks.

The Ceska Narodni Banka left its main interest rate unchanged for a sixth meeting on Aug. 1 at what it calls a “technical zero” of 0.05 percent, almost half a point below the European Central Bank’s benchmark.

The Czech central bank’s seven-member board voted at the last meeting for the first time on whether to start koruna sales, the bank said, without disclosing the breakdown of the ballot.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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