The Czech government’s borrowing costs tumbled to a record low before tomorrow’s debt sale as an unexpected interest-rate cut last week overshadowed concern that fiscal-austerity plans may be rejected.
The Czech central bank kept interest rates at a record low for a 14th meeting as a weaker koruna prevented a decrease in borrowing costs and the euro area’s debt crisis prompted policy makers to cut the outlook for economic growth in 2012 to zero.
Czech five-year yields tumbled to a record low after a two-notch rating upgrade by Standard & Poor’s boosted demand for the European Union member’s government bonds. The koruna strengthened against the euro and stocks rallied.
Czech inflation slowed in March and stayed below the central bank’s 2 percent target, adding to arguments for keeping interest rates record low even after the European Central Bank started monetary tightening last week.
Czech sovereign debt issuance will likely peak this year and shrink to levels last seen before the global credit crisis by 2013, boosting the country’s bonds, as the new Czech government seeks to slash its fiscal deficit.
The Czech central bank cut its main interest rate to a record low, the first change in two years, after faltering domestic demand sparked an economic recession and the government’s borrowing costs sank to the lowest ever.