October 4, 2016 / 7:06 AM / a year ago

Czech minister: firms need smooth end to central bank's crown cap

PRAGUE, Oct 4 (Reuters) - The Czech central bank should avoid sudden shifts in its policy of keeping the crown currency weak and ensure it does not shock the economy when it eventually exits the intervention regime next year, Industry Minister Jan Mladek said.

The bank has kept the crown on the weak side of 27 to the euro since 2013 and last week shifted the earliest possible end to the policy until the second quarter of next year while reiterating it expected to refloat the crown in mid-2017.

“A sudden change in the currency regime can threaten many firms,” Mladek was quoted by daily Hospodarske Noviny as saying at an industry conference.

“It will be necessary to start the exit of interventions in a way that will not cause unnecessary shocks to the economy,” he added in the article published on Tuesday

The weak crown policy, launched to lift inflation in the central European country, has given a boost to businesses and the economy, which is expected to grow more than 2 percent in 2016 before accelerating next year.

In 2015, the economy grew 4.6 percent, one of the fastest rates in the European Union thanks to an influx of development funds due to the end of a fund period.

Some businesses have worried about the impact once the crown is floating freely again.

The central bank has said repeatedly it would be ready to tame any currency swings once the weak crown policy finished.

It reiterated after its policy meeting on Sept. 29 that the crown would not strengthen sharply upon exit, due to pre-hedging by exporters, closing of long-crown positions and more central bank interventions if needed.

Reporting by Jason Hovet

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