Prague backs CNB on move to halt koruna's rise

Miroslav Kalousek, the Czech Republic's finance minister, said on Wednesday that the government had agreed a range of measures with the Czech National Bank, "that will to the largest possible extent work against the firming currency trend."

"The measures will lead to public-sector operations being conducted outside the foreign-exchange market," Kalousek said.

The deal largely mirrors an earlier agreement, made in 2002. Under the arrangement, the government will freeze its foreign exchange income in a foreign currency account at the central bank. The income in the account could be used to fund pension reforms.

The koruna has risen by 6% against the euro since the start of the year, with a euro worth now Kcs24.98 compared to Kcs26.54 . The central bank has said it believes the gains to be excessive.

Zdenek Tuma, the governor of the Czech National Bank, said last month that there was "no reason" for the scale of the appreciation.

"It seems to me that the koruna is out of all conceivable levels, the firming does not have any fundamental causes, there can be a certain correction," he said.

However, the central bank denied reports, which appeared in Financial Times Deutschland, that it would intervene if fluctuations became too strong.

To read the central bank's statement (available in Czech only), click here

To read the text of the agreement between the central bank and the government (available in Czech only), click here