(Corrects 'intervention' to 'other easing tools' in 2nd
bullet point and 13th paragraph)
* Rates seen flat despite c.bankers' comments, CPI
* Cut unlikely to affect FX, but other easing tools possible
* For table please double click on []
By Mirka Krufova and Jana Mlcochova
PRAGUE, Oct 9 (Reuters) - The Czech central bank's easing
cycle has ended, despite weak price data and strong comments by
some of its leading board members suggesting the debate on rate
cuts is not over yet, a Reuters poll showed on Monday.
The question has flared this month when bank Governor Zdenek
Tuma and his deputy launched a campaign against the crown,
warning of protracted deflation if the currency firmed too much
and suggesting the bank could use non-rate tools to prevent it.
But those comments sent the crown weaker and, after a
majority of central bankers outvoted Tuma and raised questions
over whether another cut would actually affect the domestic
economy, analysts said the bank would still stay put.
Twelve of 17 in the Reuters poll saw policymakers keeping
the two-week repo rate <CZCBIR=ECI> unchanged at a record low of
1.25 percent at their meeting on Nov. 5.
The persistently unsure economic outlook and lower than
expected September inflation data were not strong enough
arguments to change that view, with only five of those surveyed
expecting a 25 basis point cut. []
"It's a very close call between a 'on hold' and a 25 basis
point cut... (but) I don't think that at this stage there's a
reason to cut rates," said Piotr Matys an economist at 4Cast.
"We've got comments by (deputy central bank Governor
Miroslav) Singer and Tuma but they have to be joined by the
other interest rate setters... I doubt they will manage to
persuade the others from the board."
OTHER TOOLS
Mirroring developments elsewhere across Europe, the Czechs
have shaved two and a half percentage points off of rates since
August 2008, and until last month the debate appeared closed as
to whether the pendulum had reached the end of its swing.
But minutes from the Sept. 24 rate meeting showed members
had raised the prospect of further easing and the board
discussed alternative ways to pursue a weaker exchange rate and
thus looser monetary policy. []
Following the minutes, Tuma said the bank would consider
another cut or direct market intervention if the crown kept
firming. He said the bank had six to seven ways how to relax
policy aside rate cuts. [] []
Singer, who voted with Tuma in a minority at the meeting to
ease rates, said the board was likely to discuss a cut again and
may debate using several tools simultaneously. []
Some analysts have also said a decision will depend on the
bank's new quarterly inflation forecasts, which should come out
at the Nov. 5 meeting.
The bank has said risks to its 2010 inflation target of 2
percent plus or minus 1 percent were on the downside, while
September inflation data showing zero price growth raised
expectations that inflation would dip below zero, possibly for
several months, this autumn.
But for now, the crown strength has receded. Since the last
minutes, the unit <EURCZK=> has lost 2.1 percent to a two-month
low.
That has tempered any expectations of looser rate policy,
although seven of those surveyed said the bank could use another
tool to ease, with four expecting use of such an easing tool on
top of a rate cut and three another easing tool but stable
rates. Six said the other tools could include currency
interventions.
"We are in a kind of liquidity trap now where further rate
cuts will have virtually no effect on the economy," said Peter
Montalto, an emerging market economist at Nomura who expects
flat rates.
"As such, keeping rates unchanged but starting some kind of
longer term repos/credit/quantitative easing is possible."
