(Repeats story published on March 18)
By Jan Lopatka and Mirka Krufova
PRAGUE (Reuters) - The strong crown currency will most
likely discourage the Czech central bank (CNB) from raising
interest rates on March 26 despite an inflation spike, a Reuters
poll showed on Tuesday.
The survey showed that 12 out of 15 analysts expected the
bank to leave the main two-week repo rate <CZRP=> <CZCBIR=ECI>
flat at 3.75 percent, following a quarter-point tightening last
month and four hikes in 2007.
The remaining three saw a 25 basis point increase, and four
of those predicting no move now expected the bank to tighten
policy once more, either in May or in the third quarter.
But the rest of the field believed that the interest rate
cycle has peaked, with the sharp rise in the crown to record
highs against the euro, weaker domestic demand and the slowing
global economy providing sufficient reasons for no change.
"We believe that the CNB need not raise rates; inflation has
already peaked, the economy is starting to decelerate, and the
strong crown has tightened the policy quite a lot, in lieu of
the CNB," said Petr Dufek, an analyst at bank CSOB.
"In regard to the risks in leading financial markets, we
consider leaving rates unchanged to be more appropriate than a
rate hike."
The crown has gained nearly 10 percent versus the euro
<EURCZK=> and 25 percent against the dollar over the past year,
scaling record highs against both currencies.
Several central bankers have said the crown has firmed
beyond levels justified by the central European economy's robust
expansion of over 6 percent annually in the past three years.
The crown strength has become the biggest single
anti-inflationary factor in the small, open economy.
Another one is an expected growth slowdown to 4-5 percent
this year on weaker domestic demand, already seen in retail
sales data [] [], and weaker export
markets in Europe.
The crown has worked against faster-than-expected food and
energy price rises, as well as the impact of a government sales
tax hike and a rise in regulated prices of housing and
healthcare.
Inflation soared to a much higher-than-expected 7.5 percent
year-on-year in January and February, far above the bank's
target of 3 percent, +/- 1 percentage point.
Central bankers have insisted that the inflation spike was a
temporary phenomenon that would disappear in early 2009 when
recent big price jumps enter the comparative basis for
year-on-year price growth.
But some analysts insisted the economy needed the help of
tighter policy.
"Despite the anticipated slowdown in core market growth and
the current market turbulence, we feel that the Czech economy
demands a higher interest rate environment," said Lauren van
Biljon, an analyst at 4Cast in London.
"Globally higher food and commodity prices, as long as
(there is) a robust domestic economy, leave inflationary
pressures to the upside -- although the CNB may require a decent
EUR/CZK rally before swinging into action," van Biljon said.
The crown lost 0.75 percent to 25.29 on Tuesday as the
central bank announced it was trying to reach an agreement with
the finance ministry on limiting the crown's advance by
funnelling expected foreign currency privatisation revenue into
a special hard-currency account.
