PRAGUE, Aug 6 (Reuters) - The Czech central bank cut the
main repo rate by 25 basis points on Thursday, a slight surprise
to a slim majority of analysts who had expected policymakers to
hold off from further easing.
The bank cut the key two-week repo rate <CZCBIR=ECI> <CZRP=>
to 1.25 percent, adding to 225 basis points worth of cuts over
the past year.
Eleven out of 20 analysts polled by Reuters had expected
rates to remain stable. The rest had forecast the cut.
It followed easing elsewhere in the region, including a cut
of a full percentage point in Hungary last month and a half
point cut in Romania this week.
The Czech Republic has seen its first signs of improving
economic data with industry's decline slowing and exports
showing monthly growth in June. []
The bank gave no comment on its decision but called a news
conference for 1330 GMT where it will discuss the decision and
presnet new economic forecasts.
MARKET REACTION:
The Czech crown <EURCZK=> dipped 0.2 percent to 26.00 to the
euro following the decision, but rebounded to trade stronger at
25.906 per euro, from 25.939 before the cut.
COMMENTARY:
STANISLAVA PRAVDOVA, ANALYST, DANSKE BANK
"It came in line with our expectations and I think the key
factor is probably the new inflation forecast and the GDP
forecasts. They probably don't see any inflationary pressure in
the near future. I think this was the final cut. The market
reaction was rather limited."
DALIMIL VYSKOVSKY, FIXED INCOME TRADER, KOMERCNI BANKA
"The reaction is not big yet. However the direction is
clear: rates should go lower, on the short end especially.
"We'll see after the press conference whether they tell us
more, and whether the market will see this as the last rate cut
in the cycle. That is what I think but it depends on a lot of
factors. I think now the market will start thinking about when
the first hike will come."
RAFFAELLA TENCONI, CHIEF ECONOMIST, WOOD & CO.
"The decision to cut is only a small surprise since, despite
consensus at 1.50 percent, had the cut not taken place today
they would have cut in September."
"This announcement adds to the expectation of a full
percentage point cut to the 2009 (growth) projections and some
reduction to the 2010 outlook, that is around -3.5 percent in
2009 and close to 1 percent in 2010.
"The inflation projections were probably revised down
accordingly, although I don't expect major changes since the CNB
is likely to have increased the assumption on world oil prices."
"We believe there is scope for a final 25 bps rate reduction
before year end, although it will materialize only if strong
appreciation pressures re-emerge. We expect this final leg of
the monetary easing to be reversed quite quickly and a small
hike could take place already in mid-2010."
DAVID MAREK, CHIEF ECONOMIST, PATRIA FINANCE
"We had expected a rate cut of 25 basis points. I would
expect it will be the last step in the easing cycle because
'green shoots' in the Czech economy are more and more visible.
"It may be motivated by the forex (rate), not to allow the
crown to begin an appreciation rally again and possibly threaten
recovery of Czech exports and economy."
PETR DUFEK, ANALYST, CSOB
"I think that, for the market, this wasn't a big surprise.
Still, the crown may weaken slightly. But if that happens, it
will only be for a while, because Czech rates don't move the
crown too much."
"On the other hand, it will definitely please Czech
exporters, who have had to deal with weak international demand.
Today's decision is in line with expectations. The chances for a
cut were big, becasue the new prognoses will definitely look
worse than those previous."
KOON CHOW, EMERGING MARKETS STRATEGIST, BARCLAYS CAPITAL
"It was a surprise. They had hinted they could squeeze off
one more cut but we thought it wouldn't be necessary because of
evidence of green shoots in regional activity numbers."
"I think this is the last move. It is probably a neutral
event in terms of the crown. I don't think this cut reveals deep
seated macroeconomic problems but is rather evidence of policy
makers providing extra insurance for growth."
PAVEL SOBISEK, CHIEF ECONOMIST, UNICREDIT, PRAGUE
"It is in line with our assumptions, even though we admitted
the action could have been (to hold). We are convinced that this
will be the last cut of this economic cycle. The space to zero
(rates) is very limited."
For Czech money markets data click on <CZKVIEW>
For Czech money guide click on <CZK/1>
For Czech benchmark state bond prices click on <0#CZBMK=>
For Czech forward money market rates click on <CZKFRA>
(Writing by Jason Hovet)
