* Czechs cut rates by 75 basis points to 2.75 percent, much
more than expected
* Crown drops almost 1 percent on move before recovering
* News conference called for 3:30 p.m (1430 GMT)
(Adds comments, BOE and CNB moves, updates crown)
By Jan Lopatka
PRAGUE, Nov 6 (Reuters) - The Czech central bank slashed
interest rates by 75 basis points on Thursday, much more than
expected, as the global financial crisis hit the central
European country's growth and inflation outlooks.
The move, which came moments before unexpectedly big cuts by
the Bank of England and the Swiss National Bank, surprised
markets that had forecast a 25 basis point cut. Some analysts
had predicted a half-percentage-point cut [].
The crown currency dropped by 0.9 percent to 24.92 against
the euro <EURCZK=> immediately after the announcement, adding to
earlier losses, before recovering to 24.770 at 1215 GMT. It
later fell back to 24.92 after the European Central Bank cut its
rates as expected by 50 bps to 3.25 percent. []
The decision was the biggest move in more than six years and
took the main Czech repo rate, used for sterilising surplus
liquidity, to 2.75 percent, the lowest level since mid-2007.
"It's a surprise," said Vojtech Benda, chief analyst at ING
Wholesale Banking in Prague. "It's quite probable that the
decision was supported by an expected bold rate cut by the
European Central Bank (ECB). The CNB probably wanted to keep a
negative interest rate differential," he said.
The Bank of England also cut rates by a hefty 150 basis
points shortly after the Czechs [], and the Swiss
National Bank slashed rates by 50 basis points [].
Ceska Sporitelna analysts forecast Czech rates would keep
falling all the way to 2.25 percent next year.
Some analysts said the Czech bank may also be motivated by
strain in the interbank market, where rates for maturities over
1 month had climbed above 4.5 percent on risk aversion, and
activity dried up on maturities above 1 week.
Interbank rates fell after the vote, with the 3-month
deposit rate <CZK3MD=> down 120 basis points to a bid of 3.17
percent.
The bank gave no comment but called a news conference for
3:30 p.m. (1430 GMT), where it will release new inflation and
growth predictions.
The 2009 gross domestic product growth forecast is expected
to fall from the current 3.6 percent -- although growth is still
seen much stronger than in the euro zone. The end-2009 inflation
outlook of 2.5 percent may also be slashed.
The crown currency has gyrated wildly in the past weeks,
with brief bouts of weakening that could limit the scope for
rate cuts, but the unit remains by far the region's best
performer this year with an over 6 percent gain to the euro.
POLAND TO FOLLOW?
The Czechs, who have not been forced to bail out any banks
but whose export-driven companies are highly exposed to the
slump in west European demand, were the first in central Europe
to start cutting rates with a 25 basis point move in August.
Hungary and Serbia have hiked rates to respond to protect
their currencies amid the financial turmoil. Poland, which has
also sailed through the crisis relatively well, is expected to
start easing policy early next year.
Lars Christensen, head of emerging markets research at
Danske Bank, said the deep cut showed how much the bank was
worried about the growth outlook, and would raise the chances of
easing in Poland.
"While rate cuts are unlikely from the Hungarian and
Romanian central banks anytime soon, the pressure for the Polish
central bank to follow CNB should be mounting. We could see the
NBP cut rates already by the end of the month or in December,"
he said.
(Editing by Stephen Nisbet)
