* Czechs cut rates 75 bps to 2.75 pct, vs expected 25 bps
* Crown drops almost 1 percent, c.bank cuts 2009 growth, CPI
outlooks
* C.bank HIGHLIGHTS [],forecasts []
(Adds central bank comments, forecasts, updates prices)
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, just before unexpectedly big cuts by the Bank of
England [] and the Swiss National Bank
[], surprised markets that had forecast a
quarter-point easing [].
The crown currency dropped by 0.9 percent to 24.92 against
the euro <EURCZK=> after the announcement and traded around that
level in late trading after the European Central Bank cut rates
as expected by 50 basis points, to 3.25 percent [].
The Czech decision was the biggest move in more than six
years and took the main repo rate, used for sterilising surplus
liquidity, to 2.75 percent, the lowest level since mid-2007.
With a relatively low foreign debt and current account gap,
recession has emerged as the biggest risk for the Czech central
bank, allowing it ease policy while nearby Hungary has had to
tighten the screws amid currency attacks.
Central bank chief Zdenek Tuma said the bank reacted to a
sharp anti-inflationary shift in the economic outlook, which
also led the bank to slash its 2009 growth forecast to 2.9
percent from previous 3.6 percent.
"We believe that this significant cooling of the economy and
so significant anti-inflationary development could even lead to
undershooting of the inflation target," Tuma told a news
conference.
"There was an agreement that the board, at least this board,
does not remember such one-sided development of risks."
The bank's new inflation forecast on Thursday []
showed inflation at 2 percent in the first quarter of 2010,
exactly in line with the bank's target for that period.
Tuma said the Czech decision was not coordinated with others
and that the bank was not targeting any specific interest rate
differential with the ECB.
He declined to comment on future rate moves, but analysts
predicted more easing. Ceska Sporitelna analysts forecast rates
would fall to 2.25 percent next year.
POLAND TO FOLLOW?
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, and activity jad dried up
on maturities above 1 week. Interbank rates fell after the vote.
Tuma said he hoped the deep cut would aid an improvement of
conditions which he said was dependent on an overall cooling on
the financial markets.
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.
"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," Lars
Christensen, head of emerging markets research at Danske Bank.
"We could see the Poles cut rates already by the end of the
month or in December," he said.
(Editing by Stephen Nisbet)
