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Koruna Weakens to Month-Low on Intervention Risk: Prague Mover

June 27 (Bloomberg) -- The koruna weakened for a third day to its lowest level in more than a month after the Czech central bank said the probability of an intervention by selling the currency has increased.

The exchange rate depreciated 0.6 percent, the most among major emerging-market peers monitored by Bloomberg, to 26.073 per euro by 4:09 p.m. in Prague, the lowest level since May 23. Hungary’s forint gained 0.2 percent and the Polish zloty strengthened 0.5 percent.

Inflation and gross domestic product staying below the Czech National Bank’s forecasts are lifting the likelihood of a currency intervention, Governor Miroslav Singer told journalists today. The bank kept its main interest rate unchanged for a fifth time at 0.05 percent in a policy meeting today.

“The central bank keeps pushing its ultra-relaxed monetary policy into a more defensive position,” Helena Horska, the head of research at Raiffeisen Bank International AG’s Prague-based unit, wrote in a report to clients today. “The governor’s words didn’t sound very optimistic.”

The koruna is 5.8 percent weaker than on Sept. 17, the day before the CNB signaled readiness to sell the koruna for the first time in more than a decade to meet its 2 percent inflation target.

The Czech economy shrank for six straight quarters through March, its longest contraction on record. Consumer prices grew 1.3 percent from a year earlier in May, the slowest pace in almost three years and below the bank’s 1.6 percent estimate.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

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

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