* Polish, Hungarian, Slovak CPI fall faster than expected
* Czech, Hungarian industrial output plunges
* Bleak data point to rate cuts across region
By Balazs Koranyi
BUDAPEST, Jan 15 (Reuters) - Inflation fell faster than
expected across central and eastern Europe in December and price
pressures are expected to ease further as economies slow,
widening the scope for interest rate cuts.
Poland, Hungary and Slovakia all reported slower than
expected inflation on Wednesday and Thursday.
Analysts said further falls were expected in the coming
months due to lower oil prices and the region's economic
troubles amid a global slowdown.
Polish inflation slowed to 3.3 percent in December
[], Hungary's inflation dropped to 3.5 percent
[] and Slovakia, which joined the euro zone on Jan. 1,
reported that its rate decelerated to 3.5 percent [].
Just four months earlier, the Hungarian and Czech inflation
rates stood at 6.5 percent while Poland's was 4.0 percent.
Separate Czech and Hungarian industry output figures
indicated that the region's economic slowdown may be sharper
than markets had expected as both countries reported double
digit falls in output for November 2008.
Hungarian industrial output plunged 12 percent year-on-year
in November, Thursday figures showed [], while Czech
output dropped 17.4 percent, the largest annual drop since 2001
under current methodology []
"We find it very hard to find any country in CEE that will
have positive growth rates in 2009," Danske Bank economist Lars
Christensen said.
"The auto industry is very heavily hit across the region
and, this combined with large imbalances that are now being
unwound through a sharp slowdown in private consumption and
construction sector activity, is leading to a very sharp
slowdown in growth," he said.
RATE CUTS
Taken in the round, the region's economic data indicate that
Poland, Hungary and the Czech Republic are heading for interest
rate cuts with moves as early as this month to counter the
slowdown.
"In terms of monetary policy, we expect the central banks to
cut rates sharply (for the Czech Republic we might even see near
zero interest rates later in the year)," Christensen said.
Rate cut hopes are also heightened by expectations that the
European Central Bank will lower its key rate on Thursday, most
likely by 50 basis point to 2.0 percent.
"We still expect that the (Polish central bank) council will
cut again by 50 basis points," Piotr Bujak, an economist at Bank
Zachodni WBK said. "A similar move awaits us in February and by
the middle of the year the main rate will have fallen to 3.5
percent (from 5.0 percent now)."
Analysts expect Poland's growth to drop to 2 percent this
year after an expected 4.9 percent in 2008 <PLPOLL16>.
In Hungary's case, rate cuts will be more difficult as the
country's weak financial footing makes the central bank more
cautious but most analysts still expect a reduction in January.
"Despite the recent weakening of the forint, we expect the
central bank to continue cutting interest rates in 50 bps steps
at every meeting at least down to 8 percent," Anders Svendsen at
Nordea said.
Hungary's central bank has repeatedly said that inflation
alone would allow deep cuts in its 10 percent benchmark interest
rate but concerns over financial stability take priority.
Hungary's economy is expected to contract by 2-3 percent
this year on weak export demand, collapsing domestic demand and
a domestic credit squeeze.
In the Czech Republic, the central bank has said growth
could be below even its pessimistic, 0.5 percent forecast.
The country's 2.25 percent benchmark rate is seen coming
down by 50 basis points next month and some see it below 1
percent by the time rates bottom out.
(Reporting by Balazs Koranyi, editing by Mike Peacock)
