* Czech c.bank expected to cut by 25 bps on Nov. 6
* Some analysts see 50 bps move
* Further easing to come by end of Q1/2009
By Jana Mlcochova and Mirka Krufova
PRAGUE, Oct 31 (Reuters) - The Czech central bank is likely
to chop interest rates by a quarter of a percentage point as
inflation risks fade and growth slumps due to the crisis in west
European economies, a Reuters poll showed on Friday.
All 17 analysts in the poll, taken between Oct. 29 and 31,
said the central bank (CNB) would cut at its Nov. 6 meeting.
Thirteen predicted a 25 basis point reduction, bringing the
main interest rate to 3.25 percent, back to a level from August
last year and a second cut after an initial easing this August.
A weaker crown is likely to prevent policy makers from a
bigger cut for now but interest rates will continue head another
quarter-point south by the end of the first quarter 2009 and to
2.75 percent a year from now, the poll showed.
That will keep Czech rates lowest in the region, a huge
discount to Hungary which has hiked to 11.5 percent under an
attack on its currency.
The lowering could bring the Czech cost of money in line
with the euro zone if the European Central Bank (ECB), whose
policymakers meet on the same day as the Czech ones, cuts its
benchmark rate by 50 basis points as expected [].
Poland is expected to keep its rates unchanged at 6 percent
until the end of the first quarter next year.
The crown <EURCZK=> has experienced high volatility over the
past weeks, oscillating between 26.25 and 23.70 per euro as
growing risk aversion prompted investors sell emerging market
assets only to return upon an IMF bailout of Hungary. It traded
at 24.260 on Friday afternoon.
"With levels around 24 crowns, the CNB can consider a
gradual reduction of rates by 50 basis points, (but) with an
exchange rate above 26 crowns it can be solving the question,
whether to change rates at all," said Petr Sklenar, an analyst
at Atlantik FT.
"Therefore currently we expect a cut by 25 bps," he said.
Four economists in the poll assumed the bank would cut rates
by 50 basis points.
"The economic case for 50 bps centres on growth, the fact
that both domestic and European business confidence surveys
point to an exceptionally sharp slowdown in activity ahead, as
do equities," said Lucy Bethell of the Royal Bank of Scotland.
INFLATION, GROWTH OUTLOOK TO DROP
Czech inflation stood at 6.6 percent in September, high
above the bank's tolerance band of +/-1 percentage point around
a 3 percent target, but was below the bank's 7.0 percent
forecast.
The bank assumes prices will fall to 2.5 percent at the end
of 2009 as growth slows, commodity prices drop and an effect
from one-off tax hikes earlier this year fades.
Economists say the bank is likely to cut the outlook for
prices as well as growth, now at 3.6 percent, in a quarterly
projection due to be released at the meeting as the latest
market turmoil caps growth in the euro zone, Czech Republic's
main trading partner, and helps slash commodity prices.
Jiri Skop of Komercni Banka pointed to the bank's latest
forecast assumptions which include a Brent oil <CLOc1> price at
$148 next year, while it traded at 61.67 on Friday, and euro
zone growth of 1.3 percent, while a latest Reuters poll showed
the euro zone growth at 0.4 percent next year [].
"Only from these two factors it's evident that the CNB will
have to revise downward its forecast of the economic growth and
inflation and thus also a trajectory for interest rates," he
said.
For TABLE with analyst forecasts....[]
