Czechs Keep Rates Near Zero as Koruna Intervention Maintained

Bloomberg: The Czech central bank kept its benchmark interest rate near zero for a ninth meeting as policy makers reaffirmed their commitment to koruna sales started last month to ward off the threat of deflation.

The Ceska Narodni Banka today left the two-week repurchase rate at what it calls a “technical zero” of 0.05 percent, matching all 14 forecasts in a Bloomberg survey of economists. The bank maintained koruna sales to prevent the currency from gaining beyond levels it considers “near” 27 per euro. Policy makers will hold a news conference at 2:30 p.m. in Prague.Like its peers from the European Central Bank to the Bank of Japan, the Czech monetary authority is aiming to spur inflation and help the economy return to growth following a record-longrecession. After three rate cuts exhausted room for traditional monetary easing last year, the bank began selling the koruna in November to stop consumers from delaying purchases and boost exports to ward off deflation risks.“The Czech central bank can be proud of itself,” Thu Lan Nguyen, a currency strategist at Commerzbank AG, said by e-mail. “So far its intervention strategy has impressed the markets sustainably, bringing euro-koruna back to 27.60 without much intervention.”The Czech currency has shifted to the center of monetary policy because its depreciation makes imports more expensive and boosts the competitiveness of exports, curbing deflation risks.

Currency Drop

The koruna has lost 6.6 percent against the euro since the interventions began, the fourth-worst performance among the 31 major currencies tracked by Bloomberg. It was 0.3 percent weaker at 27.64 per euro as of 12:56 p.m. in Prague.November consumer prices unexpectedly fell from the previous month as intervention to weaken the koruna failed to bring an immediate impact. Prices dropped 0.1 percent from October after a 0.2 percent increase in September. The annual inflation rate rose to 1.1 percent from 0.9 percent.Industrial producer prices were the first indicator to reflect the interventions, rising more than expected last month.The central bank said it sold about 200 billion koruna ($10 billion) -- equivalent to about 5 percent of gross domestic product -- in the first days of the interventions, exceeding the $3.5 billion thatIsrael’s central bank plans to buy next year to curb gains in the shekel.Czech GDP shrank 1.3 percent from a year earlier in the third quarter, marking a seventh consecutive contraction as exports and investment fell. The $196 billion economy is struggling to return to growth after three years of government austerity crimped household spending and the euro-area debt crisis curbed demand for Czech exports.

reporter on this story: Peter Laca in Prague