(Recasts with c.banker Hampl, adds finmin, analyst, crown)
By Jan Lopatka
PRAGUE, March 18 (Reuters) - The Czech central bank (CNB) is
in talks with the government on limiting the crown's rise with a
range of measures to stem demand for the currency, central bank
Vice-Governor Mojmir Hampl said on Tuesday.
Hampl told Reuters that the bank was proposing freezing
privatisation income, and also not converting European Union
subsidies into crowns on the market, nor issuing Eurobonds.
Central bankers have repeatedly said the crown has risen far
beyond levels supported by the central European economy's
healthy growth.
But it was the first time in years that the bank was seeking
an explicit deal with the government on stemming the rise
through concrete measures.
"It should be ideally an agreement between the Czech
National Bank and the entire cabinet, not just the Finance
Ministry, and cover three areas," Hampl said in a telephone
interview.
He listed the areas as: "Privatisation income and its
freezing, or at least non-conversion on the market ... not
issuing Eurobonds, and not converting (EU funds) money on the
market."
The agreement should also guarantee that public institutions
receiving money from EU development funds should refrain from
hedging operations on the market.
"It should guarantee that all these things will go outside
the market and not influence the exchange rate," he said.
"Details are under negotiations."
The Finance Ministry has been considering issuing Eurobonds
this year, although market watchers said the domestic debt
calendar for the second quarter seemed to indicate a Eurobond
was not on the agenda for the moment.
The crown has gained 9.6 percent against the euro over the
past year, and hit all-time highs at 24.83 to the single
currency earlier this month, becoming a major anti-inflationary
factor at a time when annual inflation spiked to 7.5 percent.
The central European country has enjoyed over 6 percent
expansion in the past three years, but is expected to slow down
to 4-5 percent in 2008 as government reforms bite into spending,
the crown tightens conditions and west European economy cools.
So far, exports have held up and the current account deficit
reached just 2.5 percent of gross domestic product last year,
much less than in some other central and east European states.
The currency dropped as much as 0.6 percent to 25.265 versus
the euro after the plan was revealed, but climbed back to 26.176
by 1130 GMT.
"This is a new form of intervening in the market," said
Jaromir Sindel, chief economist at Citigroup in Prague.
A finance ministry spokesman said an agreement may be
reached in weeks, but gave no details.
Depositing privatisation income at a special account would
be similar to what the central bank and the government had done
in the past with proceeds from the sale of large state assets.
Leaving the money in euros until eventual euro entry,
expected after 2012, could be acceptable to the government that
wants to keep privatisation income stashed away to pay for
planned pension reforms.
The government will discuss in the coming weeks a plan to
sell the Prague Airport, valued at several billion dollars, and
flag carrier Czech Airlines.
(Reporting by Jan Lopatka, editing by Stephen Nisbet)
