Czech Koruna Gains Most Since July as Intervention Concern Eases

The Czech koruna strengthened the most in almost three months after the monetary-policy council rejected central bank Governor Miroslav Singer’s push to sell the currency for a second meeting amid an economic recovery.

The koruna gained as much as 0.8 percent, the most since July 9 on an intraday basis, before trading 0.6 percent higher at 25.699 per euro by 3:41 p.m. in Prague. It has slid 4.5 percent since Sept. 17, 2012, the day before Singer first signaled the CNB may intervene in the market.

Policy makers kept the main interest rate at 0.05 percent and a vote on koruna sales failed, Singer told reporters in Prague today. Three of the seven board members, including Singer, previously advocated intervention as inflation remains below the bank’s target even as the economy emerged from a recession in the second quarter. All else being equal, a weaker currency makes imports more expensive and helps exporters.

“Even though we think the CNB had its now-or-never moment today as far as koruna sales are concerned, this option is certainly not off the table and will influence the euro-koruna in the coming weeks,” Martin Lobotka, an economist at the Erste Group Bank AG unit in Prague.

Consumer inflation slowed to 1.3 percent year-on-year in August from 1.4 percent in July, below the CNB’s 2 percent target, the office said on Sept. 9.

The probability that the CNB will sell koruna in the future remains high as data shows the economy still needs “slightly looser” monetary conditions even as “first signs of a recovery are appearing,” Singer said today.

Czech gross domestic product expanded 0.6 percent in April to June from the previous three months, the statistics office in Prague said on Sept. 3.

“With the recovery still fragile, we expect policy makers to keep the prospect of foreign exchange intervention on the table,” William Jackson, an analyst for emerging markets at Capital Economics Ltd. in London, wrote in an e-mail to clients after the CNB announcement. “For now, barring a relapse in growth, we suspect that it won’t ultimately be adopted.”


The inflation slowdown is not enough to justify currency interventions as the koruna remains at a “weak level” and the economy is growing, Nicolaie Alexandru-Chidesciuc, a JPMorgan Chase & Co. analyst in London, wrote in a report yesterday.

Gains beyond 25.70 per euro are unlikely as they would add to reasons for the central bank to act, according to Erste’s Lobotka. Further appreciation for the Czech currency would trigger a “strong verbal intervention at 25.50 and quite likely an actual one below that,” he said.

Before it's here, it's on the Bloomberg Terminal.