East European Currencies: Czech Koruna Posts Fourth Weekly Drop

By Yon Pulkrabek

Aug. 15 (Bloomberg) -- The Czech koruna posted a fourth weekly decline against the euro on concern economic growth is faltering, prompting the central bank to reduce interest rates.

The currency had its biggest drop in more than three weeks yesterday after a government report showed the economy expanded 4.5 percent in the second quarter, the slowest pace in four years and less than economists estimated. Growth will slow ``more markedly than we had anticipated,'' central bank Governor Zdenek Tuma said Aug. 7 after policy makers cut the main rate to 3.5 percent, the lowest rate in the European Union.

``It seems the GDP data reinforced what the central bank has been saying,'' said Nicholas Kennedy, an emerging-markets currency strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. ``That reinforces speculation that they will cut rates.''

The koruna dropped 0.2 percent to 24.494 per euro at 3:06 p.m. in Prague, from 24.455 yesterday. It lost 0.5 percent in the week. Against the dollar, the koruna depreciated 2.4 percent on the week.

The currency may weaken in the third quarter before strengthening again, the central bank said today. The bank also increased its estimate for this year's budget shortfall to 1.1 percent of gross domestic product, from 1 percent previously.

In other markets, Turkey's lira fell against the dollar after policy makers yesterday held the overnight borrowing rate at 16.75 percent, halting three months of increases, as slower economic growth and falling oil prices ease inflation. The decision was forecast by 14 of 21 economists surveyed by Bloomberg. Seven predicted a quarter-point increase.

Tightening Over

``The Turkish central bank's tightening cycle is now over,'' analysts led by Nick Chamie at RBC Capital Markets in Toronto wrote in a client note. ``We expect 200 basis points in rate cuts in 2009.''

The lira dropped 0.1 percent to 1.1837 per dollar, and was at 1.1836, from 1.1831 yesterday, paring the currency's gain in the week to 0.5 percent.

The Hungarian forint dropped 0.2 percent to 239.28 per euro, from 238.75. The currency is 1.2 percent lower since Aug. 8, posting a fourth weekly drop.

The Polish zloty fell 0.4 percent to 3.3323 for a 1.7 percent weekly decline, its third in a row. Romania's leu lost 0.3 percent to 3.5502, from 3.5394 yesterday and 3.5326 at the end of last week.

The Slovak koruna was little changed at 30.318 per euro, rising 0.2 percent on the week.

To contact the reporter on this story: Yon Pulkrabek in Prague at ypulkrabek@bloomberg.net