The Czech koruna snapped two days of gains after inflation unexpectedly slowed, fueling speculation the central bank will sell the currency.
The koruna depreciated 0.2 percent, the most among 31 major currencies tracked by Bloomberg, to 25.883 per euro as of 11:44 a.m. in Prague. Yields on two-year government bonds fell two basis points, or 0.02 percentage point, to 0.41 percent, a two-month low on a closing basis, data compiled by Bloomberg shows.
Consumer prices increased 1.4 percent in July from a year earlier, the statistics office said, while analysts predicted inflation would be unchanged at 1.6 percent, based on the median estimate in a Bloomberg survey of 15 analysts. Several central bank rate setters opposed a proposal to intervene against the koruna in the market and chose to wait for potential further signs of anti-inflationary trends, according to minutes from the Czech National Bank’s meeting on Aug. 1 published today.
“Today’s data increase the probability of further loosening of the monetary policy via koruna sales by the CNB,” Martin Lobotka, an economist at the Prague-based unit of Erste Group Bank AG, wrote in a report to clients. “If inflation falls down towards 1 percent, it will very likely cement the decision.”
After three cuts of the main interest rate to 0.05 percent last year, central bankers are debating whether the first koruna interventions since 2002 are needed to battle the longest Czech recession on record. Inflation is below the central bank’s target of 2 percent.