(Wraps FX data, c.banker comments)
By Jason Hovet and Marcin Goettig
PRAGUE/KRYNICA-ZDROJ, Poland, Sept 7 The Czech
central bank may dispense with its exchange rate cap in one go
when its exits its weak crown policy in mid-2017, two board
members said on Wednesday, fleshing out a policy shift that is
moving closer and stoking investor interest in the crown.
Bank Governor Jiri Rusnok said on Wednesday he preferred a
one-off removal of the crown's 27 per euro floor, echoing
comments made by new board member Vojtech Benda, who said there
was a preference for a "clean, one-off exit".
The remarks were the clearest signal yet the bank might
avoid a step-by-step exit when it ends its nearly three-year-old
intervention regime, which it says is likely to happen around
the middle of 2017.
Rusnok said inflation should be on a firm path towards the
bank's 2 percent target in the second or third quarter next
year, a key condition for the bank to drop the regime.
"We have to be on track on our inflation target..." Rusnok
told reporters at an economic forum in Poland. "In the second,
third quarter ...we should be firmly on track."
Annual inflation was 0.5 percent in July.
Previously, he had said he would prefer inflation to
"robustly reach" or even slightly overshoot the target.
That suggested he may be giving the bank more leeway on the
exit timing, though he also said on Wednesday there was no
change in the bank's tone.
"If we see on the (policy) horizon that inflation is going
to be firmly above or robustly above the target, then that is
most important for us," he said.
Czech economic growth is among the strongest in Europe and
unemployment low, which is beginning to boost wages and feed
inflation. But the bank still faces external risks, like
Britain's scheduled exit from the European Union or weakness in
the euro zone.
Jaromir Sindel, an economist at Citibank, said a policy
extension by the European Central Bank would push the exit from
the crown regime into the first quarter of 2018.
"The recovery here will continue but will probably not
create big room for companies to deal with crown firming. From
this point of view we see the central bank keeping the floor a
bit longer," he said.
More investors, though, are betting a mid-2017 end date will
Some analysts estimated the bank may have bought 1-2 billion
euros last month to keep the crown from firming, which would be
a jump from monthly purchases in the hundreds of millions of
euros between February and July, the latest data available.
(Addtional reporting by Robert Muller; Editing by Jan Lopatka
and John Stonestreet)