* Czech c.bank expected to cut by 50 bps on Feb. 5
* Interest rates to match historic low
* Weak FX limits scope of cut
By Jason Hovet and Mirka Krufova
PRAGUE, Jan 28 (Reuters) - Declining economic growth will
push the Czech central bank to cut interest rates by 50 basis
points next week, but a weak currency will limit calls for a
bigger reduction for now, a Reuters poll showed on Wednesday.
The expected move at the Feb. 5 policy meeting will bring
the Czech two-week repo rate to 1.75 percent, matching an
historic low seen in mid-2005.
The bank has cut rates by 150 basis points in three moves
since August last year.
Twelve of 14 analysts polled between Jan. 26 and 28 expected
a half percentage point cut in borrowing costs, with one
expecting rates to be lowered by 25 basis points and one 75
basis points.
Thirteen analysts also expected the central bank to continue
loosening policy in the coming months as central European
economies suffer under a fall in demand for their goods from the
recession-hit euro zone.
(For a TABLE showing forecasts, double click on [])
"Darker clouds over the Czech economy should persuade the
CNB to go on with aggressive easing of monetary policy," said
David Marek, chief economist at Patria Finance.
"The weaker currency did some (of the) job, however interest
rates can decline further to cushion tough times."
A slew of poor data released this month -- including a
record drop in November production -- has pointed to a rougher
than expected slowdown for the export-reliant Czech economy.
Poland's central bank cut interest rates more than expected
on Tuesday, citing lower growth and deteriorating conditions for
its companies.
Hungary has already cut two-thirds of an emergency 300 basis
point hike from October and Romania is expected to join the
loosening trend next month.
Many economists and some outside agencies have slashed Czech
growth forecasts to near zero for 2009.
The European Bank for Reconstruction and Development cut its
growth projection for emerging Europe on Tuesday to 0.1 percent
for 2009, and forecast Czech economic growth to stall
completely, versus a 2.5 percent growth estimate from November.
[]
The central bank last released projections in November, with
a baseline scenario of 2009 growth at 2.9 percent. In the past
weeks policymakers have called this unrealistic and said an
alternative scenario of 0.5 percent growth is more likely.
Vice-governor Miroslav Singer told Reuters last week that
growth could hover around zero. The bank will release new
projections at its Feb. 5 meeting and will include foreign
exchange rate forecasts for the first time.
The crown <EURCZK=> has lost 4 percent since the central
bank's last cut rates by 50 basis points on Dec. 17 as investors
shun central European assets due to the slowdown.
A weaker currency makes imported goods more expensive,
adding to inflationary pressures.
Vojtech Benda, senior economist of ING bank in Prague, said
he expected a 50 basis point at the February meeting, followed
by another half point drop the month after.
Several analysts have said 1 percent will likely be the
floor for interest rates in the first half of the year.
