Czech Economy Facing Renewed Recession Risk, Policy Maker Says

The Czech economy is facing the risk of a recession that without currency interventions could eclipse the record-long slump it exited this year, central bank Deputy Governor Vladimir Tomsik said.

The Ceska Narodni Banka began the first koruna sales in 11 years on Nov. 7 to keep the currency “near” 27 per euro. Tomsik reiterated the strategy today, a day after another board member, Lubomir Lizal, sent the koruna weaker by saying he can imagine a scenario that would force policy makers to change the intervention rate to 28 per euro.

The central bank is trying to boost household spending to ward off a deflation threat and increase export competitiveness to aid the $196 billion economy’s recovery. After three interest-rate cuts to what the bank calls a “technical zero” of 0.05 percent last year, the Czechs are emulating monetary authorities from U.S. Federal Reserve Bank to the Bank of Japan in using non-traditional stimulus.

“There was one quarter of revival, and the flash estimate for the third quarter shows we may return to recession,” Tomsik said today at a conference of exporters in Prague. “We had six quarters of recession, and I fear it could have been much worse in the coming years if we hadn’t acted.”

The koruna has weakened 5.5 percent against the euro since the interventions began, the worst decline among 31 major currencies tracked by Bloomberg. It traded 0.3 percent stronger at 27.293 at 11:51 a.m. in Prague.

Preliminary data showed the economy unexpectedly shrank 0.5 percent from the previous three months in the third quarter after growing 0.6 percent in the April-June period.

The currency interventions, whose main goal is to return consumer-price growth toward the central bank’s 2 percent target, will help save about 60 billion koruna ($3 billion) of economic output, Tomsik said today.

To contact the reporters on this story: Peter Laca in Prague at placa@bloomberg.net; Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

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

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