The Czech koruna retreated from a four-month high as inflation slowed more than expected, boosting the case for the central bank to weaken the currency.
The koruna depreciated 0.2 percent to 25.554 per euro by 12:51 p.m. in Prague after the statistics office said the inflation rate fell to 1 percent in September, the lowest since March 2010, from 1.3 percent in August. That came below the 1.2 percent median estimate of 20 analysts polled by Bloomberg.
Czech National Bank policy makers are debating whether inflation under their 2 percent target warrants the first currency interventions in 11 years. The bank’s board last month rejected for a second meeting Governor Miroslav Singer’s push to start koruna sales as its members disagreed on the magnitude of deflation risks. A weaker koruna would make imports more expensive and exports more competitive.
“Today’s data is raising the probability of interventions to more than 50 percent at the next policy meeting on Nov. 7,” Martin Lobotka, an economist at Erste Group Bank AG’s Prague-based unit, wrote in a report to clients today. “We expect at least a verbal intervention in the coming days.”
The currency has advanced 1.2 percent in the past three months, the biggest gain among emerging-market peers monitored by Bloomberg after Poland’s zloty.
Investors should sell the koruna on expectations it will weaken to 26 per euro in three months, Lobotka said.
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