(Adds more quotes, background)
By Jana Mlcochova
PRAGUE, Oct 30 (Reuters) - The Czech Republic should not set
a euro entry date amid the current financial crisis while it
remains useful to retain the national crown currency, central
bank Governor Zdenek Tuma said on Thursday.
Tuma told the upper house of parliament that having the
national crown currency had on balance played a positive role in
shielding the Czech economy from impacts of the crisis.
"For me this (crisis) is rather a signal that there should
be no binding decision taken now," Tuma said.
The comments confirmed the cautious view the Czechs have on
euro entry unlike Slovakia, which is joining in January, Poland
with its 2012 entry target and Hungary which has said it should
join as soon as possible.
Tuma said he could hardly imagine joining the pre-euro ERM-2
exchange rate system under the current high foreign exchange and
other financial market volatility.
"I would consider that rather risky," he said.
The crown shed as much as 1.14 percent following Tuma's
comments, dropping to 24.580 per euro <EURCZK=>, before firming
somewhat to trade at 24.470 at 1338 GMT, or 0.7 percent weaker
since the comments.
The government has no euro target, and has said recent steps
adopted by some euro zone countries, such as relaxing fiscal
rules, supported its cautious approach.
The country has benefitted from low inflation and interest
rates in most recent years, quashing the hunger for joining the
single currency.
Czech banks have revealed limited exposure to the toxic
assets that have led to bank troubles in the United States and
western Europe but it has felt some impact from the crisis.
The currency has been hit, although it is still the best
performer in the region this year with a 10 percent gain versus
the euro. The stock market has plummeted, interbank money market
rates have shot up and the government bond market has nearly
dried up, forcing the government to suspend auctions.
Tuma said he saw the biggest risk from the crisis coming
through a possible sharp slowing of economic activity. The bank
and the Finance Ministry have already slashed their 2009 growth
forecasts, to 3.6 and 3.7 percent respectively.
Tuma said that while the country was used to facing
appreciation pressures on the currency in the past, he could
also see a scenario where risk aversion toward central Europe
could create downward pressure on the currency next year.
"If this aversion led to a bigger outflow of capital then it
can cause problems," he said.
DIRECT IMPACT
Tuma said the only way the global financial crisis has so
far affected the Czech economy was through "secondary channels"
which, apart from risk aversion to the central European region,
also include distrust on the interbank market towards exposure
to parent institutions.
"Risk aversion and credit premiums on the interbank market
have increased," he said.
He said the bank now devoted most attention to recent
failures on the bond market, where bid/offer spreads widened
sharply and banks at times ceased to quote.
Tuma said the bank's new repo facility, which offers to lend
funds to banks against state bonds in order to restart standard
bond market operations, was proving to work well.
"We are convinced that it is already possible to observe
that it has contributed to certain easing."
(Writing by Jan Lopatka, editing by Andy Bruce)
