Czech Inflation Stays Below Target Amid Currency-Sales Talks

The Czech inflation rate remained below the central bank’s target for a fourth month in April, contained by weak consumer demand, as policy makers debate whether to stimulate the economy by selling the koruna.

Inflation was 1.7 percent from a year earlier, the same as in the previous month, the Statistics Office in Prague said today in a statement. The reading also matched median forecast of 14 economists in a Bloomberg survey. Consumer prices rose 0.1 percent from March.

The $217 billion economy has contracted for five consecutive quarters, the longest streak since records began in 1996, as households and businesses spend less because of government austerity measures and Europe’s debt crisis. Policy makers are in uncharted territory after cutting interest rates to effectively zero last year and the bank board is debating whether currency sales are needed to meet its inflation goal.

“We don’t expect the central bank to start direct foreign-exchange interventions now,” Vaclav France, an analyst at Raiffeisenbank AS in Prague, said in a note after the data. “Inflation is now developing practically in line with the central bank’s new forecast. Because of this, and the Czech koruna weakness, the need for further monetary easing appears to be low.”

Rates Held

The Ceska Narodni Banka left the benchmark two-week repurchase rate at 0.05 percent for a fourth meeting on May 2. After three rate cuts last year exhausted the scope for further reductions, the koruna is at the center of policy makers’ deliberations as a weaker exchange rate boosts exports that account for about 80 percent of economic output, increases import prices and limits deflation risks.

The Czech currency has lost 4.8 percent to the euro since Sept. 17, the day before central bank Governor Miroslav Singer first said policy makers may sell the currency to meet their inflation goal. It was the third-worst performer in that period among major emerging-market peers tracked by Bloomberg.

The koruna was little changed at 25.783 per euro as of 10:20 a.m. today in Prague. The yield on 10-year government debt rose 3 basis points, or 0.03 percentage point, to 1.55 percent.

“We are now debating interventions quite often,” Singer said May 7 at a conference in Prague.

The central bank last week raised its forecast for price growth in the second quarter of 2014 to 1.8 percent from 1.7 percent, and in the third quarter of next year to 1.9 percent from 1.8 percent.

Some Czech policy makers see an increased likelihood that the central bank will need to sell the koruna to ease monetary conditions, minutes from the bank’s May 2 policy meeting showed today.

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