The koruna slid after Czech central bank board member Lubomir Lizal said the need to weaken the currency has risen and as European sales of cars, the country’s biggest export product, tumbled to a 20-year low.
The koruna depreciated 0.1 percent to 25.638 per euro by 5:06 p.m. in Prague. It stood 4.3 percent weaker than on Sept. 17, a day before the Czech National Bank first signaled the possibility of selling the currency if deflation risks mount.
Inflation below the CNB’s target is boosting the case for the bank’s first koruna sale in almost 11 years, Lizal said in an interview with Bloomberg News yesterday. The economy shrank for six consecutive quarters through March, its longest recession on record, prompting the CNB to cut its main interest rate to 0.05 percent last year and debate koruna weakening.
“Lizal’s comment isn’t totally surprising, since we know the central bank doesn’t want a stronger koruna,” Michal Brozka, an analyst at Raiffeisen Bank International AG’s Prague-based unit, said by phone. “While we expect a cyclical economic recovery that would support the koruna, the CNB will keep intervening verbally to slow down the currency gains.”
Data showing disinflation in the Czech economy is “a negative surprise to us, and this is still a major worry in my mind,” CNB Governor Miroslav Singer said in an interview with Bloomberg News on June 13. Board member Kamil Janacek said in a Reuters interview the same day an exchange rate between 25.60 and 26 is “satisfactory” and does not require an intervention.
‘Much More Likely’
“Now it seems much more likely that there will be a need to intervene, compared with what it appeared to be at the beginning of the year,” Lizal said yesterday.
European car registrations in May dropped 5.9 percent from a year ago to the lowest since 1993, the European Automobile Manufacturers’ Association said today. Exports account for about 80 percent of Czech gross domestic product, led by cars and parts from local units of companies including Volkswagen AG, Hyundai Motor Co., Peugeot SA and Toyota Motor Corp.
Czech bonds fell for a second day, lifting the yield on the government’s 10-year koruna notes by three basis points, or 0.03 percentage point, to 2.04 percent. The yield has been rebounding from an all-time low of 1.48 percent a month ago, according to data compiled by Bloomberg.
The yields may be “unsustainably low” and an outflow of investors from Czech bonds may have a negative impact on Czech banks’ profitability, Governor Singer said at a news conference in Prague today.