Czech Sales Unexpectedly Improving Damp Koruna Intervention Case

Czech retail sales unexpectedly rose in May, adding to signs the economy is recovering from recession and damping the case for the central bank to weaken the koruna.

Sales expanded 1.2 percent from a year earlier after a 1.5 percent increase in April, the Prague-based statistics office said today. That compares with the median estimate of 12 economists surveyed by Bloomberg for a 0.8 percent contraction.

The Czech economy shrank for six quarters through March, its longest contraction on record, as the government, companies and households cut spending, prompting the central bank to cut its main interest rate three times last year to 0.05 percent and debate whether to sell the koruna in the market. Data released July 1 showed Czech manufacturing improved for a third month.

“The retail figures for May are a pleasant surprise and, combined with the similar result for April, raise expectations that the Czech economy returned to quarterly growth in the second quarter,” Pavel Sobisek, chief economist at UniCredit SpA’s Prague-based unit, wrote today in a report to clients. “If positive trends in consumer demand continue, this would signal less need to artificially weaken the koruna.”

The Czech currency has depreciated 3.7 percent this year and 5.8 percent since Sept. 17, a day before the central bank signaled its readiness to sell the koruna for the first time in more than a decade. It gained 0.1 percent today to 26.042 per euro by 12:46 p.m. in Prague.

While disinflationary trends in the economy have increased the probability of interventions, rate setters haven’t yet reached agreement to weaken the currency, Governor Miroslav Singer said June 27.

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