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Koruna Drops as Below-Target Inflation Fuels Intervention Talk

April 9 (Bloomberg) -- The koruna declined as inflation in the Czech Republic stayed below the central bank’s target for a third month, fueling speculation on whether policy makers will try to stimulate the economy by weakening the currency.

The inflation rate was 1.7 percent in March, unchanged from February and matching the median estimate in a Bloomberg survey, according to a Statistics Office statement today. The Ceska Narodni Banka in Prague, which lowered borrowing costs three times to 0.05 percent last year, has debated publicly and in private whether to engage in currency interventions amid a record-long recession.

“Risks to the central bank’s inflation forecast are tilted to the downside, and hence towards slightly easier monetary conditions,” Nora Szentivanyi, a London-based economist at JPMorgan & Chase Co., said in an e-mailed report today. “It is more likely that the bank will intervene verbally if needed.”

The Czech currency depreciated 0.1 percent to 25.754 per euro by 4:22 p.m. in Prague, extending its decline this year to 2.6 percent. Yields on the country’s three-year bonds rose six basis points, or 0.06 percentage point, to 0.45 percent.

The inflation figures were “a bit on the anti-inflationary side” without approaching deflation, Martin Lobotka, a Prague-based analyst at Erste Group Bank AG’s Ceska Sporitelna unit, said in an e-mailed report today.

The more “the central bank has to correct its inflation expectations downwards, the more likely direct currency-market interventions in the second half of 2013 are becoming,” Carolin Hecht, a Frankfurt-based strategist at Commerzbank AG, wrote in an e-mailed report before the inflation figures.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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