* Czech central bank cuts rates by 25 bps to new low
* Slight majority expected flat rates
* Crown dips after decision
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By Jan Lopatka
PRAGUE, Aug 6 (Reuters) - The Czech central bank cut
interest rates to a new record low on Thursday to counter a deep
economic recession, a mild surprise for a market that had been
leaning towards no change given signs of a recovery in foreign
demand.
The bank lowered the key two-week repo rate <CZCBIR=ECI>
<CZRP=> to 1.25 percent in what analysts said was most likely
the last easing in the current cycle, which started with the
repo at 3.75 percent last August.
The Czech economy slid a record 3.4 percent in the first
quarter due to a collapse in foreign orders for the country's
cars and electronics from trade partners, mostly Germany.
The central bank took the decision after discussing new
quarterly economic forecasts, likely to point to a deeper
recession and lower inflationary risk than its previous outlook
for a 2.4 percent fall in gross domestic product this year.
"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," said
Koon Chow, emerging markets strategist at Barclays Capital.
"I think this is the last move."
Eleven out of 20 analysts polled by Reuters had expected no
rate move, and the rest forecast a 25 basis point cut.
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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 recession has been deeper than the bank had expected.
Policymakers had also spoken in favour of one more monetary
easing move, citing firming in the crown currency in the past
months and an expected slowdown in household demand.
The crown has gained 14.4 percent from this year's February
low as investors returned to more risky assets after months of
shunning emerging markets. <EURCZK=>
The crown is a key inflation factor in the economy highly
dependent on foreign trade.
But latest data on industry and trade, showing a decline in
the fall of output and monthly rise of exports in June, have
shown that signs of recovery in western Europe may be filtering
into the Czech economy, which tilted the market consensus toward
stable rates.
"(The cut) may be motivated by the forex, not to allow the
crown to begin an appreciation rally again and possibly threaten
recovery of Czech exports and economy," said David Marek, chief
economist at Patria Finance.
The bank is due to reveal the new forecasts at a news
conference called for 3.30 p.m. (1330 GMT).
The forecasts will include a fresh inflation outlook,
expected lower than the current call for 1.7 percent in the
third quarter last year.
That is below the bank's 2 percent target, with a +/- 1
percentage point tolerance band.
The crown dipped 0.2 percent to 26.00 to the euro following
the decision, but bounced back slightly to trade at 25.955 by
1158 GMT.
For regional currency poll, click on []
(Reporting by Jan Lopatka; Editing by Michael Winfrey/Ruth
Pitchford)
