Czech central bank chief wants strong krona based on fundamentals

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Czech Crown coins are seen in front of a displayed logo of the Czech Central Bank (CNB) in this illustration taken April 1, 2017. REUTERS/David W Cerny/Illustration

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PRAGUE, June 27 (Reuters) – Incoming Czech central bank governor Ales Michl said on Monday he wants a hard currency based on long-term cash flow and investor interest, reiterating his stance a few days before he took over as head of the bank. .

Michl takes office in July amid a year-long tightening cycle that has seen rate hikes of 675 basis points, which Michl voted against. He promised future rate stability.

The board also continues to use market interventions as a complementary policy tool to prevent an unwanted weakening of the krone from leading to increased inflationary pressures.

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Michl has not directly commented on the policy since his appointment in May, but in a weekly column he writes for the daily Mlada Fronta Dnes, he said on Monday that the conditions for a strong corona were still lacking.

He said the krona will be strong when three conditions are met: balanced long-term public finances, strong exports and a trade surplus, and a current account that is not deteriorating.

“Czech Republic doesn’t fulfill any of that now,” he wrote, reiterating comments he made in an interview with Ekonom magazine on May 26.

The bank first launched interventions to halt a sharp decline in the krone after Michl’s appointment in May sparked concerns over a dovish change to the board.

The bank continued its interventions as the krone and other central European currencies come under pressure now that major central banks like the US Federal Reserve have also resorted to rate hikes.

The central bank has consistently voted 5-2 for rate hikes over the past year, but three of the hawkish members, including incumbent Governor Jiri Rusnok, will leave the board this month.

One of the new members, incoming vice-governor Eva Zamrazilova, voiced her support for the use of cash interventions in an interview with the Seznam Zpravy news site in late March, saying the tool would be “less painful” than to raise interest rates further.

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Reporting by Jason Hovet Editing by Mark Heinrich

Our standards: The Thomson Reuters Trust Principles.

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