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Czech Central Banker Ready to Use Koruna as Tool If Needed

The Czech central bank may use a weaker koruna to ease monetary conditions, boost exports and counter deflation risks, Governor Miroslav Singer said.

In the case of a “real” need, the “easiest” solution would be a currency intervention, Singer said in an interview published today in Hospodarske Noviny. Weakening the koruna would be a “logical” step in a country, where exports equal 80 percent of economic output, he said.

The Czech central bank cut its benchmark two-week rate to a record-low 0.25 percent on Sept. 27 amid an economic recession. Policy makers also discussed which policy tools may be used to ease monetary conditions more than would be accomplished by another rate reduction.

“If we had a feeling that there are long-term deflationary risks, the most obvious way of how to counter them is via currency weakening,” Singer told Hospodarske Noviny, adding he was “satisfied” with the last rate cut.

Weaker Koruna

The koruna dropped 0.2 percent to a six-day low of 24.983 against the euro. Even as prospects of currency interventions have caused it to weaken 2.7 percent since reaching its 2012 high of 24.326 per euro on Sept. 11, the koruna remains 1.5 percent stronger than three months ago.

Singer said he doesn’t have “any dramatically good feeling” about the koruna’s exchange rate at the moment, as the currency is stronger than central bank’s expectations. He declined to discuss at what level the central bank would sell the koruna.

The economy has been in recession for three quarters as the euro region’s debt crisis reduced demand for exports, while consumers defer purchases. Gross domestic product shrank 0.2 percent in the second quarter from the previous three months and is set to stagnate in 2012, according to the European Commission’s forecast.

Singer didn’t rule out other non-standard measures should a weaker currency fail to fuel the economy. Still, such steps, which would act as incentives to boost lending, aren’t on the table at the moment, he said.

“We can debate about such ‘throwing money out of a helicopter,’ but this is well beyond the horizon,” he said.

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