ENP Newswire -
Release date- 22082014 - Bank Undecided How to Exit Weak Currency Regime, Says Policy Maker Jiri Rusnok.
The newest policy maker at the Czech central bank said he backs the bank's policy of keeping the country's exchange rate weak at least through early 2016 to protect a fragile recovery, and sees no need to devalue the koruna further against the euro.
The comments by
'The current exchange rate regime with the floor at
'There is nothing relevant which warrants-at least I see it that way-changing our view and I think that the (exchange rate) commitment level is adequate,' he said.
His remarks follow Governor
A weak currency typically boosts growth via higher exports, and adds to inflation through firmer prices for imported goods and services.
When official interest rates are near zero?as they are in the
Last November, one year after keeping its headline interest rate at 0.05% amid the recessionary economy, the Czech central bank launched its
By weakening the koruna about 5% from pre-intervention levels, the bank also pledged to maintain the currency's exchange rate at above
The country's annual inflation rate has been stuck at just above zero since the start of the year and well below the midpoint of the bank's 1%-3% target corridor for more than two years.
The central bank expects prices to increase, fueled by the economic recovery, accelerating the inflation rate to 2% in the second half of 2015.
'The exchange rate commitment is doing its work,'
Early Friday the koruna traded at 27.80 against the euro, weaker from 27.79 Thursday, but below Wednesday's 28.00, its weakest level since
The weaker koruna is to offset any disinflationary pressures due to a possible economic slowdown in
The koruna is unlikely to return to its firmer pre-intervention levels after the central bank abandons its weak-currency regime,
'The overall price level has increased even though at a slower pace than we had expected but I don't see any reason for the koruna jump suddenly to get firmer,' he said.
Much will depend on how the bank ends its weak koruna policy. 'We haven't decided yet how we're going to do it but in theory we can either abandon the regime in one step with full transparency or we can do so gradually,'
Battered by weakness in the euro zone, the
The economy is expected to grow 2.9% in 2014.
'However, I'm concerned about sustaining the growth momentum beyond this year,'
'I can't rule out a possible downward revision of our (2015) forecast.'
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