WHAT: Czech interest rate setting meeting
WHEN: May 6; decision 1100 GMT, news conference 1230 GMT
REUTERS FORECAST: 16 of 19 analysts expect no change in
interest rates, with the other three seeing a 25 basis point
cut. The key two-week repo rate <CZCBIR=ECI> has been at an
all-time low of 1 percent since December.
In the poll, 14 analysts said the next move would be up this
year, but were evenly split as to whether a hike would come in
the third or fourth quarter.
FACTORS TO WATCH: Analysts said the high uncertainty over
euro zone member Greece's debt struggle, which has battered
markets this week, and unclear fiscal outlook after a May 28-29
election will push the central bank into a wait-and-see mode.
The crown currency's strength this year has been a strong
anti-inflationary factor, but the unit has dropped 2.1 percent
to 25.545 versus the euro since hitting a seven-month high on
April 15.
Czech inflation was a touch below the central bank's
forecast in March at 0.7 percent year-on-year. The bank has said
it saw inflation near the 2 percent target in the first half of
2011, the bank's policy horizon.
The central bank forecast in February that the Czech economy
would rebound 1.4 percent this year after dropping 4.1 percent
in 2009. Policymakers are due to discuss the bank's updated
macroeconomic outlook at the May 6 meeting.
Market speculation grew in the past two weeks that the bank
would cut interest rates once more after Vice-Governor Mojmir
Hampl said signs from the real economy and the financial sector
showed downside price risks. []
His softening stance put him close to comments from fellow
Vice-Governor Miroslav Singer and board member Vladimir Tomsik,
the only two dissenting votes calling for a rate cut at the last
meeting on March 25. Both have repeated there was still room to
cut interest rates. []
Eva Zamrazilova will be the only member of seven missing
from the next meeting, meaning Governor Zdenek Tuma will have
the deciding vote if the board is split on a decision.
Tuma announced on April 15 that he will step down at the end
of June, about eight months before his term ends, to reduce the
speculation period over his successor. Hampl and Singer are seen
as the most likely replacements. []
MARKET IMPACT: The biggest move would be on interest rate
swaps and forward rate markets, which dealers said have roughly
priced in a 50 percent chance for a cut. Short-end rates here
would have room to move further down in the case of a cut, while
could retreat if no move is made.
A rate cut, which would bring Czech borrowing costs 25 bps
below euro zone rates, would also add pressure on the crown,
although the currency has already retreated this week. Bonds
have been more influenced by supply issues this year.
For a TABLE with vote forecasts: []
Czech central bank website: www.cnb.cz
Governor Tuma at March 25 news conference: []
All Czech economic data: <ECONALLCZ>
Central and eastern Europe market report: <CEE/>
(Reporting by Mirka Krufova and Jason Hovet; Editing by Toby
Chopra)
