* Czech cbank cuts rates by 50 bps to 2.25 pct
* Polish finmin sees market risks to H1 2009 ERM-2 plan
* Polish cbank gov says could intervene to prop up zloty
By Adrian Krajewski and Jana Mlcochova
WARSAW/PRAGUE, Dec 17 (Reuters) - Czech policymakers cut
interest rates and the governor of Poland's central bank said it
may prop up the plunging zloty as emerging Europe struggled to
fight back against the encroaching global economic crisis.
The worst hit of the European Union's larger ex-communist
states, Hungary, must wait before returning to long-term bond
issues, its central bank chief said, after a collapse in
investor confidence since it took an IMF/EU bailout in October.
Once seen insulated from crisis due to low exposure to toxic
U.S. debt, the region has seen growth falter, investors dump
assets, and interbank lending freeze up due to the credit crunch
and the recession in the euro zone.
Following bold rate cuts from global central banks and a
smaller but growing wave of reductions in central Europe to
stave off flagging growth, the Czech central bank cut interest
rates by half a percentage point on Wednesday to 2.25 percent.
Czech central bank Vice-Governor Miroslav Singer said the
economy was "significantly deviating from forecast" and downside
risks pointed to more interest rate cuts. Of the six board
members present, two voted for cuts of 75 and 100 basis points.
"What we are reacting to is driven by a drop in global
demand. That is a phenomenon that includes implications for all
three indicators (the crown currency, growth, and inflation),"
Singer said.
The decision, in line with expectations, took the main repo
rate to its lowest level since July 2006 and below the euro
zone's 2.5 percent. Some economists had expected a 75 basis
point cut after the U.S. Federal Reserve slashed rates to zero
on Tuesday.
The move followed easing in its peers -- ranging from a
quarter point in Poland last month to Hungary's twin 50 basis
point moves since a 3 percentage point hike in October -- as
well as the ECB's 75 basis point cut earlier this month.
Analysts said more cuts would come, particularly as
economists slash growth forecasts across the region from above 5
percent in many countries a year ago to as low as 2 percent for
the Poles and Czechs and a recession for Hungary.
"There is a dawning realization that interest rates are
going to be cut sharply, that the outlook for the real
economies... is pretty dire," said Neil Shearing, an economist
with Capital Economics.
POLISH EYES ZLOTY, EURO
In Hungary, Central Bank Governor Andras Simor said Hungary
would have to rely on its $25 billion rescue package from the
European Union, the International Monetary Fund (IMF) and the
World Bank and treasury bills for financing. But it would take
time before the market would take longer-term government debt.
In Poland, Finance Minister Jacek Rostowski said the
government was sticking to plans to put the zloty in the
precurser to the euro, the ERM-2 exchange rate mechanism, by
mid-2009 but that market volatility could prompt a rethink.
The zloty has underperformed other currencies in the region,
losing 28 percent against the euro since July 31, largely due to
investors from developed countries ditching emerging assets.
Those losses and turbulence in Hungary, have prompted Warsaw
and Budapest to consider joining the euro zone more quickly than
previously planned to shield themselves from crisis.
"Our goal is to enter ERM-2 in the first half of the next
year," Rostowski told reporters. "We think the markets situation
will stabilise by then. If not, we can delay this decision."
He was countered by Polish central bank Governor Slawomir
Skrzypek, an ally of euro-sceptic President Lech Kaczynski, who
said if the zloty were locked into a rigid ERM-2 band against
the euro -- in which the central bank would have to defend it
against swings against other currencies -- there would be risks.
"The currency's volatility brings many risks in the event of
our ERM-2 membership," he said. "Political and economic elements
point to the need for serious re-thinking of this decision."
Skrzypek also voiced unease about the plunging zloty, which
has lost 28 percent since July 31 as western investors flee
emerging markets, and said the bank may have to prop it up.
"I am not a supporter of forex interventions but such a need
cannot be ruled out now," Skrzypek told reporters.
Skrzypek's comments failed to dent the zloty's fall and by
1335 GMT the currency traded at 4.12 against the euro, down
almost one percent compared to late trading on Tuesday. The
zloty hit an all-time high of 3.20 in late July.
Analysts expect the Polish bank to cut by up to half a point
at its Dec. 23 meeting to help prompt flagging growth after it
began an easing cycle last month with a quarter percentage point
cut. Its main rate is now 5.75 percent.
(Writing by Michael Winfrey and Dagmara Leszkowicz; editing by
Patrick Graham)
