Czech Koruna Gains Most in Two Weeks as Zeman Seeks Cap Removal

The koruna rallied the most in more than two weeks after President Milos Zeman stepped up attacks against the central bank’s weak-currency policy.

Zeman said on Thursday he will appoint central bankers starting next year who will “rectify” the Czech National Bank’s cap that stops the exchange rate from gaining beyond 27 per euro, Pravo newspaper reported on its website Novinky.cz. The koruna extended gains to as much as 0.8 percent to 27.256 a euro after the president’s comments.

Investors have been gaging the strength of the CNB pledge to keep the policy, designed to fight deflation risks, until at least July next year. Zeman, who has repeatedly criticized the measure, is scheduled to choose the successor of its main advocate, Governor Miroslav Singer, in July 2016 and pick three more bankers for the seven-member board by the end of his first term as president in 2018.

“I can assure you that they will be people who will rectify the wrong move by the CNB, which has reduced the value of our savings by 6 percent to 10 percent in euro terms,” Pravo quoted Zeman as saying during a visit to a bus factory in the western Czech town of Holysov.

Two weeks ago, the president said the decision by policy makers in November 2013 to weaken the koruna with interventions and impose the cap was economically “inefficient” and was intended to delay euro adoption, CTK news service reported. The koruna gained 1.2 percent that day to 27.25, the biggest rally in more than three years, on speculation that Zeman’s attacks may prompt the central bank to scrap the policy earlier.

Not ‘Justified’

Rate setters won’t ditch the cap before October next year, according to 11 of 13 economists polled by Bloomberg on Feb. 20-25, including five who see the policy extended until 2017. Two predicted an exit in the third quarter of 2016.

The koruna traded 0.6 percent stronger at 27.319 a euro by 6:30 p.m. in Prague.

“We don’t see today’s koruna rally as justified, taking into account that Zeman’s announcement is not a game changer for the current monetary policy stance,” Jakub Seidler, chief economist at ING Groep NV’s Czech unit, said by e-mail. “The next opportunity for Zeman to replace a board member will not be before mid-2016.”

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