(Adds dropped word 'and' in paragraph 1)
PRAGUE, June 17 The Czech financial sector is
stable and could withstand a strong recession accompanied by
deflation thanks to capital buffers, the central bank said on
Tuesday in a regular financial stability report.
The main risks to the sector were a possible return to
recession because of developments in trading partners as well as
a deterioration in domestic demand, the central bank said.
"(Global) central banks and supervisory authorities are
facing the task of avoiding a renewed decline in demand and a
fall of economies to the deflation trap, and at the same time
preventing excessive risk-taking on financial markets," the
central bank (CNB) said.
"The CNB is actively preventing the risk of a drop in demand
and deflation by using the exchange rate as a monetary policy
instrument, which is contributing to the stability of the
The central bank launched interventions last November to
weaken the crown currency and fight deflation risks as the
economy recovers from a record-long recession that ended in
(Reporting by Jason Hovet; Editing by Hugh Lawson)