* Still space for rate cuts due to low CPI- Rezabek
* C.bank governor sees economy stabilising this year
* Finance minister expects growth to return in 2010
* FinMin considers eurobond as spreads fall
By Martin Dokoupil and Jana Mlcochova
PRAGUE, April 21 (Reuters) - Slowing inflation in the Czech
Republic leaves scope to cut interest rates but the bottom is
not far, and policymakers expect the sliding economy could
stabilise soon and show at least anaemic growth next year.
Central bank board member Pavel Rezabek said rates could go
lower than their current 1.75 percent, while central bank
Governor Zdenek Tuma said the economy could shrink 1-2 percent
this year and Finance Minister Miroslav Kalousek predicted a
return to tiny growth next year.
The Czech central bank has lopped 200 basis points off
lending rates since last summer to boost an economy heading
toward recession, but left them unchanged at a record low last
month due to currency risks.
"I would not fear to continue a bit more in easier monetary
policy. Of course it has a limit and this limit is not that far
away," central bank board member Pavel Rezabek, a dove on the
bank board, told Reuters in an interview on the sidelines of an
economic forum.
"I personally do not see that much inflation pressure -- in
the nearest horizon of one year -- that could be in play in the
Czech Republic," he said.
Inflation edged up to 2.3 percent in March and could ease to
near zero in the coming months before rebounding.
But a weak currency has limited the scope for rate cuts, and
analysts expect the bank to hold rates again at a May 7 policy
meeting.
The crown <EURCZK=>, central Europe's best performer this
year, is 0.4 percent stronger at 27.0 to the euro since the
March meeting but is 4.4 percent below the central bank's
full-year average forecast of 25.80.
The crown has outperformed its regional peers thanks to the
country's smaller exposure to refinancing risks than seen in
places such as Hungary, which has tapped the International
Monetary Fund for a $25 billion credit.
Spreads on Czech debt have dropped in recent weeks as
investors take on more risk, allowing the government to restart
considering raising cash via a eurobond issue, Kalousek told
Reuters. []
FINDING A BOTTOM
The global downturn has cut western demand for Czech cars
and electronics, knocking more than 20 percent off industrial
output and pushing it into a likely recession, along with other
export-heavy central European economies.
Poland, whose more closed economy is seen better placed than
its neighbours and could still post growth this year, has also
cut interest rates to a historic low. Its central bank governor,
Slawomir Skzypek, said on Tuesday the bank kept an easing bias
[].
Poland reported a better-than-expected 2 percent annual
production drop in March. A car scrap subsidy in the region's
largest export market Germany, and other countries, has boosted
central Europe's auto sector.
"We are at the beginning from the view of the impact on the
real economy, but I believe the fall in industry and the economy
could stop," Tuma told a conference [].
The Czech central bank's latest forecast from February saw a
contraction of 0.3 percent in 2009. A new forecast comes in May.
The Finance Ministry has prepared budget scenarios for up to
a 2 percent contraction. Kalousek said he expected 0.5 percent
growth in 2010. []
"Next year, there could be moderate growth in tenths of a
percent, somewhere around half a percent," Kalousek said.
The economic downturn has squeezed government revenue, and
Kalousek has said the 2009 public sector deficit could widen to
5 percent of gross domestic product from 1.5 percent last year.
(Writing by Jason Hovet; Editing by Victoria Main)
