Czech Currency Cap Questioned as Premier Defends Central Bank
(Bloomberg) — Czech Prime Minister Bohuslav Sobotka backed the central bank’s independence in shaping monetary policy after the country’s president called for an end to currency interventions to weaken the koruna.
“The country has an independent currency” and there’re “certain attributes naturally linked with that, including the authority of the central bank,” Sobotka said in an interview late yesterday. “I believe there’re positive outlooks in terms of Czech economic growth. Low inflation pressures come from outside the Czech economy.”
The debate is dividing officials a day after the Swiss National Bank unexpectedly scrapped its three-year policy of capping the Swiss franc against the euro, an approach similar to that adopted by Czech policy makers led by Governor Miroslav Singer. President Milos Zeman, who has the power to appoint central bank board members, spoke out against the currency interventions two days ago.
Czech policy makers intervened to weaken the koruna in 2013 and set a cap on gains at around 27 per euro to avert deflation. The central bank, whose chief mandate is to keep inflation between 1 percent and 3 percent, reiterated last month that it sees the limit in place at least until the first quarter of 2016. Inflation stood at 0.1 percent from a year earlier in December, compared with the central bank’s forecast of 0.6 percent.
The koruna traded little changed at 27.805 against the euro at 1:28 p.m. in Prague, after tumbling to 28.517 on Jan. 12, the weakest level since March 2009.
Singer has sought to play down the prospect of an even lower currency limit, saying Jan. 13 that it may only become necessary if there was a “long-term increase in deflation pressures.” Zeman, who’s previously opposed the policy to weaken the koruna, called on the central bank to “immediately abandon the interventions it plans until the end of 2016.”
To contact the reporter on this story: Lenka Ponikelska in Prague at lponikelska1@bloomberg.net To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Paul Abelsky, Andrea Dudik
