Czech GDP Growth Surges to EU’s Fastest to Strain Currency Limit

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Czech economic growth unexpectedly accelerated to the strongest since 2007, surging at the fastest pace in the European Union last quarter and putting a strain on the central bank’s policy of limiting its currency’s gains.

Gross domestic product grew 4.4 percent from a year earlier after a 4 percent increase in the previous three months, the Statistics Office in Prague said in its first estimate on Friday. That was better than every forecast in a Bloomberg survey of 12 economists, whose median estimate was for a 3.4 percent advance. The koruna traded little changed near the central bank’s cap of around 27 versus the euro.

The surprise acceleration compounds the central bank’s dilemma after a 2.4 percent gain in the koruna this year forced it to intervene on the foreign-exchange market last month for the first time since 2013. Rate setters have faced down criticism from politicians including President Milos Zeman and reiterated last week that they planned to keep the currency limit in place until at least the second half of 2016.

“The fast economic growth confirms pressure on the koruna,” Jan Sedina and David Navratil, analysts at Ceska Sporitelna AS in Prague, said in an e-mailed note. “The central bank expected 3.4 percent, so this surprise presents a pro-inflationary risk to its forecast and view of the world.”

The koruna was little changed at 27.02 to the euro at 11:21 a.m. The government’s 10-year bonds gained, lowering the yield two basis points to 0.87 percent, trading 25 basis points above similar-maturity German bunds.

Currency Interventions

The central European nation of 10.5 million is enjoying faster growth after the central bank pushed the koruna weaker by intervening in the market and setting a cap on its gains in 2013, moves policy makers say have helped to avert deflation and fuel the recovery. GDP grew 0.9 percent from the previous quarter, according to the statistics service.

“The Czech economy is regaining its lost position as the region’s high flyer,” Viktor Zeisel, an analyst at Komercni Banka AS, said in a note, adding that he revised his GDP growth forecast to 4.6 percent this year. “Domestic growth is robust and balanced across all sectors of the economy.”

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