*13 of 16 analysts see Czech cbank holding rates next week
*17 of 21 analysts see Hungarian rates on hold next Monday
By Sandor Peto
BUDAPEST, March 19 (Reuters) - The Czech and Hungarian
central banks are seen keeping interest rates on hold next week
due to recent currency falls, but a deepening recession is
expected to prompt further rate cuts later in 2009.
Central European currencies fell sharply in the past months
due to concerns over the region's reliance on foreign financing
and a string of rate cuts aimed at helping economies weather the
impact of the global crisis.
In the past two weeks a global rise in risk appetite helped
the units partially recover, but monetary policy makers in the
region have warned that a return of currency weakness could lift
inflation and pose risks to financial stability.
In a Reuters poll published on Thursday, 13 of 16 analysts
projected that the Czech bank, which has cut its main rate by
200 basis points in four moves since August to 1.75 percent,
will keep it on hold at its meeting on March 26.
In another poll, 17 of 21 analysts forecast that the
Hungarian central bank's (NBH) base rate would also stay
unchanged at a meeting on Monday, even though the analysts
projected a 4.5 percent economic contraction for 2009, one
percentage point more than a month ago.
Earlier polls showed that Romania's central bank is also
seen holding fire this month, while the Polish bank is set to
continue to cut rates further but moves larger than 25 basis
points are unlikely.
"It seems to us that the (Czech) central bank will be
reluctant to ease monetary policy further despite (the) economic
slowdown," said Piotr Matys, emerging markets analyst at 4cast.
"The main reason is the Czech crown. The bank officials are
concerned that significant depreciation could fuel pressure on
inflation."
GLOBAL CONSOLIDATION HOPED
All the banks in the region face the same dilemma.
They weigh up cutting rates further to help the economy at
the risk of further currency falls and a rise in inflation, or
waiting in the hope that global markets consolidate, opening
room for monetary easing.
"In the base case, (the Hungarian central bank's) next move
will be a cut in about six months," said Gergely Szabo Forian of
Pioneer Fund in Budapest.
"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."
Politicians face a similar challenge: lower interest rates
could help ease economic pain which is seen touching off
protests and may topple governments in the region this summer.
But the currency falls threaten defaults on the foreign
currency loans held by a large number of households in some
countries of the region, and could exacerbate concern over the
stability of the region's economies.
Even though the currency problem came into the limelight
recently, analysts said central banks cannot afford to neglect
the other key problem of the region, a drastic slowdown in
economic growth or recession in some countries, analysts said.
Recession will also put a brake on inflation, they said.
Half of the analysts in the Czech poll said that the central
bank will cut again by June as the growth outlook erodes and
inflation hits new lows.
The central bank of Hungary, which is in its worst recession
since the early 1990s, is also seen cutting rates by one
percentage points by the end of 2009, though one month ago
analysts saw room for cuts totalling two percentage points.
"(Hungary) might arrive at a double digit output gap at the
end of the year, also showing up in inflation and GDP numbers,"
said Michal Dybula of BNP Paribas in Warsaw. "It's hard to see
for now how deep the recession can go."
Interest rate polls:
Hungary seen keeping rates on hold, GDP falling []
Czech cbank set hold rates in March, may cut by June
[]
Polish cbank seen cutting rates by 25bps in March
[]
Romania GDP growth to plunge; CPI, rates to remain high
[]
Interest rates in Czech Rep, Hungary
[]
(Reporting by Sandor Peto; Editing by Toby Chopra)
