The Czech koruna depreciated from a four-month high as inflation slowed more than expected, boosting the case for the central bank to sell the currency.
The koruna weakened 0.3 percent to 25.588 per euro by 4:49 p.m. in Prague after the Czech Statistics Office said the inflation rate fell to 1 percent in September, the lowest since March 2010, from 1.3 percent in August. That came below the 1.2 percent median estimate of 20 analysts polled by Bloomberg.
Policy makers are debating whether inflation under their 2 percent target warrants the first currency intervention in 11 years. The central bank’s board last month rejected Governor Miroslav Singer’s push to start koruna sales as its members disagreed on the magnitude of deflation risks. A weaker koruna would make imports more expensive and aid exports, which account for about 80 percent of the country’s gross domestic product.
“Today’s data is raising the probability of interventions to more than 50 percent at the next policy meeting on Nov. 7,” Martin Lobotka, an economist at Erste Group Bank AG’s Prague-based unit, wrote in a report to clients today. Investors should sell the koruna on expectations it will weaken to 26 per euro in three months, he said. “We expect at least a verbal intervention in the coming days.”
The koruna has advanced 1 percent in the past three months, the biggest gain following Poland’s zloty among emerging-market peers tracked by Bloomberg, after the Czech economy exited its longest recession on record in the second quarter.
After cutting the main interest rate three times last year to 0.05 percent, the Czech National Bank, which does not target economic growth, said the exchange rate would be its next tool if further monetary easing is needed to ensure price stability.
Monetary-policy inflation, defined as price growth adjusted for changes in indirect taxes, slowed to 0.2 percent last month from 0.5 percent a month earlier, the CNB said today. That was “deep below” the target range of 1 percent to 3 percent and the data signal mounting downside risk for prices, the bank said in a statement on its website.
“The downside surprise in September inflation, coupled with koruna strength, reinforces our view that the probability of foreign-exchange intervention remains high,” Nora Szentivanyi, an economist at JPMorgan Chase & Co. in London, wrote in a report to clients today.