* Czech central bank rate meeting on Aug. 6
* Small majority expects stable rates
* Poor data in favour of cut, foreign recovery against
* For poll details click on [] <CZ/ECON19>
By Mirka Krufova
PRAGUE, July 29 (Reuters) - The Czech central bank may
refrain from lowering interest rates next week amid signs of a
recovery abroad but a Reuters poll showed the market was finely
split and poor domestic data may tilt the balance toward a cut.
The survey showed 11 out of 20 economists expected the bank
to leave the main 2-week repo rate <CZCBIR=ECI> <CZRP=>, used to
drain excess liquidity, at an all-time low of 1.50 percent,
after 225 basis points worth of cuts over the past year.
The other nine forecast a cut, reflecting a finely split
market ahead of the Aug. 6 meeting.
"We'll probably not be expecting further cuts from the
Czechs. At the same time, it's too early for them to see signs
of recovery," said Imran Ahmed, emerging markets strategist at
the Royal Bank of Scotland.
"Although we're starting to see an end to the rate cut cycle
across emerging economies, we just see rates staying low for a
long period."
Neighbouring Poland left rates unchanged on Wednesday
[], keeping its main rate at 3.5 percent, while
Hungary cut by a bigger-than-expected 100 points on Monday, to a
still punishing 8.5 percent.
The Czech economy shrank by 3.4 percent in the first
quarter, and analysts expectations are of a delay to the return
to growth path as industrial output continues to suffer -- by 22
percent year-on-year and 2.1 percent month-on-month in May.
This, along with expected continued growth in unemployment
and a firming of the exchange rate, a key price in the highly
open economy, speaks in favour of a cut.
Three analysts expecting no move next week still forecast a
cut in September, so overall the market was poised for one more
easing this cycle.
But the bank itself has raised questions over the need to
cut the already low nominal level of rates and the clogged
channel commercial credit flows. Long-end rates have also come
under pressure due to growing government debt.
VICE GOVERNORS SPLIT
Balanced voices from the bank itself helped the market
remain on the fence.
One of the bank's two vice-governors, Miroslav Singer, told
Reuters last week that the room for a debate on rates had grown
since the last meeting, where the bank held steady.
[]
The other, Mojmir Hampl, told Bloomberg this week he was not
convinced further easing was necessary. []
The board last voted 4-1 to keep rates on hold on June 25,
with board member Pavel Rezabek the only one in favour of a cut.
The market had expected a cut in June, by a 10-7 margin.
"It's going to be a close call... But overall, it's due for
a 25 basis point reduction. If not now then certainly at the
following meeting," said Michal Dybula, strategist at BNP
Paribas.
"What we all know is going to happen is that the output gap
is going to widen tremendously across the globe, in the region,
and in the Czech Republic. That will drive deflationary risk,
which in my opinion is greatest in the Czech Republic if we
consider central and Eastern Europe."
Czech year-on-year consumer inflation stood at 1.2 percent
in June. The bank has forecast it at 1.1 percent in the second
quarter next year and 1.7 percent in the third quarter, below
the bank's target of 2 percent.
The bank's board will consider new quarterly staff forecasts
at the meeting. Analysts mainly expect it to slash the 2009
gross domestic product figure further down from -2.4 percent
predicted in May.
(Additional reporting by Michael Winfrey; Writing by Jan
Lopatka; Editing by Richard Balmforth)
