PRAGUE, March 19 (Reuters) - Emerging European Union central
banks are holding interest rate meetings next week, with the
Czechs and Hungarians expected to keep rates on hold and the
Poles to cut by 25 basis points.
Analysts said policy makers in the countries were still
split, however, between fears of further drops in local
currencies that could fuel inflation pressures and sinking
growth due to the economic downturn.
Following are analyst comments.
ON REGION
CAPITAL ECONOMICS
"Interest rates across the region are likely to fall to
record lows over the coming months, despite the fact that the
recent turmoil in financial markets has prompted the markets to
price in rate hikes. We think this would do little to shore up
sentiment towards the region: at present a few extra basis
points of yield are unlikely to attract a huge inflow of foreign
capital."
"The pace of cuts is now likely to ease, with policymakers
in Hungary and Romania remaining particularly cautious."
ON CZECH RATES
JAROMIR SINDEL, ECONOMIST, CITIBANK
"Although we expect consumer price growth to increase
gradually in the second half of 2009, reflecting the crown's
weakness, we believe there are downside risks to economic growth
which are likely to decrease the FX pass-through onto consumer
prices and to also create stronger disinflationary pressures
through the weaker labour market."
"We believe the central bank will keep its interest rates
unchanged in the near term, owing to the crown's high
volatility."
PIOTR MATYS, EMERGING MARKETS ANALYST, 4CAST
"The Czech economy is contracting faster and deeper than
expected amid collapse in foreign demand."
"The bank will be reluctant to ease monetary policy further
despite an economic slowdown. The main reason is the crown. The
central bank's officials are concerned that significant
depreciation could fuel pressure on inflation."
"Thus in case of a sharp crown's depreciation amid crisis
escalation in the region... the bank could in fact hike rates
(later) as Governor Deputy Singer suggested."
DAVID MAREK, CHIEF ECONOMIST, PATRIA FINANCE
"Monetary policy is squeezed by two opposite forces. Gloomy
economic outlook calls for further monetary easing, while
extreme FX volatility can deter the central bank from interest
rate changes."
"However, recent negative figures from Germany, other euro
zone countries and a fall in exports and industrial orders in
the Czech Republic suggest that we have not reached the end of
the easing cycle."
PETR SKLENAR, CHIEF ECONOMIST, ATLANTIK FT
"The weaker crown and its impact on inflation and the
economy is the main factor against further rate reduction."
"(But) a plunge in economic activity plays in favour of low
interest rates."
"The result of these opposite influences is stagnation of
interest rates at least in the nearest future and we do not
expect a change in rates at least until the end of this year."
JIRI SKOP, ECONOMIST, KOMERCNI BANKA
"The bank board seems intimidated by the significant
weakening of the crown. The crown depreciation in coming months
should thus prevent the board from further rate reduction
although the GDP development will be much more pessimistic than
the bank assumed."
"We think that in the near future the central bank will keep
rates at the current level of 1.75 percent."
ON HUNGARIAN RATES AND GDP/REGION
MICHAL DYBULA, BNP PARIBAS
"Core inflation is markedly lower -- we will enter a proper
recession cycle. It's bleak, hearing the bearish calls from the
euro zone, it's providing a pretty negative backdrop for all of
central and eastern Europe, and particularly for Hungary."
"With the credit crunch, the tight policy they have to
maintain, it's not looking good. We might arrive at a double
digit output gap at the end of the year, also showing up in
inflation and GDP numbers."
NEIL SHEARING, CAPITAL ECONOMICS
"The outlook for the real economy is dire. A collapse in
export demand looks set to cause industrial output to contract
by around 20 percent this year. And with the government required
to narrow its budget deficit under the terms of its IMF
programme, fiscal policy will offer no cushion."
"We are sticking to our forecast for interest rates to hit a
record low of 6 percent by the end of this year. The recent
rally in the forint... has raised the prospect of a 25 basis
point cut this month, but a 50 basis point cut next month looks
marginally more likely to us."
IVAILO VESSELINOV, DRESDNER KLEINWORT
"The monetary policy outlook for this year and next will
continue to depend crucially on market pressures on the forint,
in our view. For Germany, the economic forecast is being revised
over and over again -- we could see sizeable amendments to our
projection for the economy if the macro data fail to improve."
"The forint's weakness is set to trigger adverse
pass-through to inflation in the coming months, but the risk of
a substantial CPI overshoot is likely to be mitigated by high
interest rates."
SIMON QUI JANO-EVANS, CHEVREUX
"Indeed, we continue to see the need for a tightening of the
budget to keep credibility in place (which is why we also see a
more than 5 percent drop in GDP this year)."
DAVID NEMETH, ING BANK
"I don't expect the forint to weaken beyond 320 (to the
euro), thus rates can be kept on hold (in the next months) but
if pressure on the forint builds, the bank will need to hike
rates."
GERGLEY SZABO FORIAN, PIONEER FUND MANAGEMENT
"(The bank's) next move will be a cut in about six months.
If international sentiment improves, that may even happen within
three months, but it's also possible that after 12 months rates
will stand just where they are now... I see 50:50 chance for a
forint firming or weakening."
"If it weakens beyond 315 (to the euro), they can hike rates
at the next meeting (after March), and if it firms to 285, they
can cut."
GYORGY BARCZA, K&H BANK
"I'm even more sure then earlier that they will need to hike
interest rates. There are more and more signs that inflation
will pick up again in the next months. The weakening of the
forint will pass through into prices."
For WRAPUP on regional rates double click on []
For Czech POLL double click on []
For Hungarian POLL double click on []
(Reporting by Jana Mlcochova/Mirka Krufova in Prague and
Sandor Peto/Marton Dunai in Budapest)
