(Adds finance minister comments, updates crown)
By Jan Lopatka
PRAGUE, March 18 (Reuters) - The Czech central bank (CNB)
and the finance ministry said on Tuesday they were working on a
deal to stem the crown currency's rise, sending it sharply lower
against the euro.
Central bank Vice-Governor Mojmir Hampl told Reuters that
the bank was proposing leaving privatisation income in euros,
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 has sought
a deal with the government on stemming the rise through concrete
measures, an update and expansion to earlier agreements that
delayed eurobond issuance early this decade.
"It should be ideally an agreement between the Czech
National Bank and the entire cabinet, not just the Finance
Ministry," Hampl said in a telephone interview.
The agreement should also guarantee that public institutions
receiving money from EU development funds should refrain from
hedging operations on the market.
Finance Minister Miroslav Kalousek confirmed a deal was
"being born".
"We have several points with (central bank Governor Zdenek
Tuma) that we want to agree on," Kalousek told Reuters.
"I want to submit them to the cabinet as an agreement
between the government and central bank (on) using the few
instruments that the government and the central bank may have to
slow down the pressure on crown firming."
The crown lost ground after Hampl's comments and dropped
further after Kalousek confirmed the deal was being negotiated.
It hit a one-month low of 25.48 to the euro before
recovering to 25.43 at 1535 GMT from 25.065 late on Monday.
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.
HIGH GROWTH
The crown has gained 8.7 percent against the euro over the
past year and hit all-time highs at 24.83 earlier this month,
becoming a major anti-inflationary factor at a time when annual
inflation spiked to 7.5 percent.
The country has enjoyed over 6 percent growth in the past
three years, but is expected to slow to 4-5 percent in 2008 as
government reforms bite into spending, the crown tightens
conditions and western Europe's 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.
"This is a new form of intervening in the market," said
Jaromir Sindel, chief economist at Citigroup in Prague.
Leaving privatisation income in euros until eventual euro
entry, expected after 2012, could be acceptable to the
government as it 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 Prague Airport, valued at several billion dollars, and flag
carrier Czech Airlines.
(Additional reporting by Jan Korselt, editing by Stephen Nisbet)
