UPDATE 2-Czech government fails to fast-track bill giving central bank powers to act in market

(Recasts, adds Prime Minister, central bank, parliament rejection)

PRAGUE, March 24 (Reuters) - The Czech government tried and failed to fast-track a bill through parliament on Tuesday that would widen the central bank’s authority to act in debt markets with the aim of untying the bank’s hands to buy bonds in case of market turmoil.

The proposed provisions were already part of a wider bill that has been making its way through parliament, and are designed as a backstop for the bank to enable it to buy a bigger range of securities and trade with a broader net of counterparties.

Finance Minister Alena Schillerova said late on Monday the fast-tracked legislation would lead to actual buying of government bonds by the bank.

But Prime Minister Andrej Babis denied this would be the case, as did the central bank.

“We will untie the central bank’s hands by this law,” Babis told the lower house of parliament.

“The central bank will be able to enter the bond market but I am pointing out again that all further steps will be under the authority of the Czech National Bank (CNB). It does not mean the CNB will be buying bonds immediately.”

The central bank is currently only able to buy and trade sovereign debt with maturities of up to one year.

The original bill, approved in January, widens the scope of assets and counterparties for conducting monetary policy, bringing its range of operations in line with the European Central Bank.

The new bill copied these provisions, which the central bank has been seeking since 2016, the bank said on Tuesday. It stressed the bill did not alter a ban on monetary financing.

The parliament’s speaker, however, said he did not include the bill for fast-tracking alongside other government anti-crisis measures.

Schillerova’s initial comment on a late-night news programme on Monday appeared to suggest an agreement between the central bank and government on a bill that would lead to actual bond purchases from the state.

The government asked parliament on Tuesday to increase the planned 2020 budget deficit five-fold to 200 billion crowns ($7.81 billion) to counter the outbreak, which has shut most shops and closed factories.

The country had 1,289 confirmed cases of the coronavirus and two deaths as of Tuesday morning.

Schillerova said last week the state, which has one of the lowest debt-to-gross domestic product ratios in the European Union, would borrow to finance the swelling deficit.

Market volatility has widened the bid-ask spreads on Czech bonds, pushing up yields. The benchmark 10-year bond was bid with a yield of 1.866% on Tuesday, up from 1.313% at the end of February.

$1 = 25.5990 Czech crowns Reporting by Jason Hovet,Robert Muller and Jan Lopatka; editing by John Stonestreet and Ed Osmond