* Czech c.banker Zamrazilova: few reasons to lower rates
* Big rate cut could hurt deposit market
* Economy past worst, next GDP data to be "more favourable"
By Jana Mlcochova
PRAGUE, June 10 (Reuters) - There are few reasons to cut
Czech official interest rates further and the economy is past
the worst, central bank board member Eva Zamrazilova told
Reuters in an interview.
The Czech Republic coped well with a financial sector crisis
which hit global markets in autumn but a consequent collapse in
western European demand wounded the export-reliant economy.
Some analysts say policy makers could slash rates again on
June 25 after grim economic data sparked doubts about whether
the country's small and open economy hit a floor in the first
quarter.
But Zamrazilova said she saw arguments for stable rates.
"At the moment I am not decided yet, we still awaiting some
data ... but I really do not see in this situation many reasons
for further lowering," she said in remarks cleared for
publication on Wednesday.
The central bank trimmed interest rates by a total of 225
basis points in five cuts since August to a record low of 1.5
percent, with the last cut in May. Czech rates are 50 basis
points above the euro zone benchmark.
A key factor in decision-making was the country's financial
stability, including the deposit market, Zamrazilova said.
Deposits in Czech banks exceed loans by around 30 percent,
keeping the sector well financed.
"An important factor for deciding (on rates) is maintaining
financial stability and ... an effort to keep some dynamics of
the deposit market plays against a decline in rates."
"More than a half of all deposits comes from households and
I think that a significant lowering of interest rates could
really harm the deposit market," said Zamrazilova, who voted for
stable rates at the bank's last two rate-setting meetings in
March and May.
She said the bank's new 2 percent inflation target due to
come into force next year, below the current 3 percent, was an
important factor in deciding policy.
"The current interest rates setting and the current outlook
trajectory is consistent with a smooth transfer to a new
inflation target. That is of course a priority," she said.
The central bank forecast drawn up before the May cut
predicted three-month interbank rates would first drop and then
rise slightly in 2010.
May annual inflation was 1.3 percent, just above the bank's
expectations for a 1.2 percent price growth.
ECONOMY TO IMPROVE
Revised gross domestic product (GDP) data on Tuesday showed
the economy began to contract in the fourth quarter last year
and shrank by 3.4 percent in the first quarter of 2009.
Industrial output slumped 23.2 percent year-on-year in April
because of withering foreign trade, raising concerns among
analysts the economic drop was not beginning to even out yet.
But Zamrazilova said the worst seemed to be over.
"The biggest part of the economic slump is behind us and in
the following quarters' GDP data could be more favourable," she
said.
She said household consumption should remain in positive
numbers and the economy of Germany, the major market for Czech
goods, might recover faster than elsewhere.
Market rates have shown limited reaction to the central
bank's monetary easing efforts. Zamrazilova said she was aware
the impact of monetary policy on the interest rates that banks
charge to companies and households was a "soft spot", which was
one of the reasons why she voted against the rate cut last
month.
Zamrazilova said she did not fear the Czech Republic would
be affected by Latvia's problems, saying the Czech economy was
protected by external, price and financial stability.
(Editing by Ruth Pitchford)
