By Martin Dokoupil
PRAGUE, Jan 21 (Reuters) - Czech interest rates could be cut
again next month as economic growth may stagnate this year, but
a weak crown currency may limit room for further policy easing,
central bank Vice-Governor Miroslav Singer said on Wednesday.
The global crisis hit hard once fast-growing economies in
Central Europe in recent months, forcing central banks to slash
borrowing costs to help companies facing deepening recession in
the key euro zone market combined with tough access to loans.
A record drop in Czech industrial output and exports in
November surprised many, making central bankers turn to a
pessimistic growth scenario and some analysts even to expect the
country to follow Hungary into recession this year.
Singer told Reuters in an interview that the very bad
economic data were no surprise to him, saying he can imagine
another rate cut as risks are relatively anti-inflationary.
"It is evident that the figures are fulfilling the negative
scenario, on the other hand the scope (for rate cuts) is being
capped to a large extent by crown weakening," Singer said.
"Both things will balance somehow, so my opinion, where
rates should be, will probably not be dramatically different
(from December)," he said.
Singer was the only central banker calling for an aggressive
100 basis-point policy easing at the Dec 17 meeting, where the
bank decided to trim the key two-week repo rate by 50 basis
points to 2.25 percent, its lowest level since June 2006.
Singer said he is going to decide how to vote on rates at
the next policy meeting on Feb 5 just shortly before as risks
and uncertainties are still dramatic.
The bank cut its main rate by 150 basis points last year,
and most analysts expect another 50 basis point cut in February
as inflation slowed sharply in 2009. Some even predict rates to
fall to a record low of 1 percent by June.
GROWTH TO FALTER
Industrial output fell 17.4 percent in November, double what
the market had expected, while exports dropped 18 percent as the
economy's backbone, the car industry, driven by Volkswagen's
Skoda Auto <VOWG.DE>, plunged on falling demand in Europe.
"It seems so far that the Czech economy ... will move
somewhere around zero, plus/minus, this year," he said. "There
can be negative growth in the first half of the year and then
the question is whether the second half will reverse it or not."
The central bank's baseline scenario forecasts this year's
growth at 2.9 percent, while the pessimistic forecast sees it at
0.5 percent, down from an estimated 4.5 percent last year and
expansion of around 6 percent in the preceding years.
The bank will release its new quarterly forecast at the next
rate-setting session in February.
Singer said that a recent crown weakening against the euro
posed no problem for the economy as it brought only a limited
inflation impulse.
"The crown is somewhere where it is not only making no
problems for the economy, but it helps it a bit without
endangering the inflation target dramatically," Singer said.
The crown has lost more than 17 percent from a record high
of 22.93 hit in July 2008 <EURCZK=>. It stood at 27.555 per euro
as of 1524 GMT. The bank's inflation target will drop to 2
percent next year from 3 percent plus/minus 1 percentage point.
(Editing by Stephen Nisbet)
