Czech Economy Doesn’t Need Koruna Cap Shift Now, Hampl Says

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The Czech central bank doesn’t need to shift its currency cap now because reviving growth is creating consumer demand pressure, Vice Governor Mojmir Hampl said.

His statement follows an announcement from the regulator that the probability of moving the level at which policy makers have capped koruna gains -- now at about 27 against the euro -- has increased due to deflationary risks. Hampl said the bank’s current policy will probably suffice to keep the recovering economy on track.

“The probability of shifting the cap has risen, however, I don’t think that we’re now at the stage where this is necessarily needed, or would be in sight, because the economy has revived and is generating natural demand pressures,” Hampl said at a conference in Mlade Buky, northeast Czech Republic, on Friday. “Monetary policy options are limitless, but I don’t think we need to test the tool we’re using now.”

Rate setters are weighing the impact of an economic recovery and the possible effects of the euro area’s quantitative easing on price growth, which has hovered near zero for three months.

The koruna lost 0.1 percent at 1:26 p.m. in Prague to 27.49 against the euro. The koruna has gained 0.6 percent against the common currency this year, trailing gains in its regional peers the Polish zloty and the Hungarian forint.

The central bank said after its March 26 meeting that policy makers can’t exclude using other unconventional tools. In the past, they have also discussed negative rates, but the Czech legal system would make such a step difficult, Hampl said.

“If there were a need to do something, for me at least, negative rates are rather at the end of the menu than at the start,” Hampl said. He added that inflation will remain low until the first half of 2016 due to oil prices.

The central bank has said it will keep the ceiling limiting koruna gains in place at least until the second half of 2016. Bank board member Lubomir Lizal said April 9 that there’s some risk that it may maintain the cap even longer.

(A previous version of this story corrected the fourth paragraph to reflect central bank didn’t mention negative rates after March meeting.)

(Updates with koruna in fifth paragraph.)
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