The Czech koruna weakened the most in more than six months as central bank Vice-Governor Mojmir Hampl said inflation isn’t a risk, adding to speculation that the bank will stimulate the economy with currency sales.
The koruna depreciated as much as 0.7 percent against the euro, the biggest intraday decline since Sept. 27, according to data compiled by Bloomberg. It traded 0.6 percent weaker at 25.868 per euro as of 2:29 p.m. in Prague. Yields on the country’s 10-year bonds fell 11 basis points, or 0.11 percentage point, to 1.77 percent.
The Ceska Narodni Banka, 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. Hampl reiterated today to lawmakers that economic activity is subdued and risks are tilted in an “anti-inflationary” direction.
“Data from the real economy are so far showing that we are bouncing at the bottom, but the question is how long this bouncing will last,” Hampl said at a hearing of the parliamentary budget committee in Prague today. “Pro-inflationary pressures aren’t visible.”
The Czech economy is more subdued than the central bank had expected and weaker household demand signals deferred consumption due to declining prices except for food and fuels, the bank said last week in minutes from its March 28 policy meeting.
Most central bank board members see risks pointing to a need of “slightly” looser monetary policy by the middle of next year, according to the minutes published April 5.
March inflation was 1.7 percent from a year earlier, the same rate as in the previous month and below the central bank’s 2 percent target, the Statistics Office said yesterday. Unemployment dropped to 8 percent from 8.1 percent in February, the Labor Ministry said.
“The data confirmed that the Czech economy is still fighting a recession,” Jan Vejmelek, chief economist at Societe Generale SA’s unit Komercni Banka AS, said in an e-mail today. “Domestic fundamentals are certainly not a reason for koruna appreciation. On the contrary, in light of the current developments, the koruna will probably again test a technical resistance level of around 25.9 per euro in the coming days.”