(For other news from the Reuters Central European Investment
Summit, click on
http://www.reuters.com/summit/CentralEuropeanInvestment08?pid=500)
By Jan Lopatka
VIENNA, Oct 22 (Reuters) - A weaker crown currency may limit
the need to ease interest rates, central bank Vice-Governor
Miroslav Singer said on Wednesday.
Last week, Singer said the debate at the bank's next policy
meeting due on Nov. 6 could be not only about cutting the cost
of borrowing again, but also about by how much.
But the Czech crown <EURCZK=>, dragged down by the Hungarian
forint and general outflows from emerging markets in the global
financial crisis, has lost 2.6 percent over the past week and is
trading 11.7 percent off an all-time high seen in July.
With the crown weakening, Singer said, "we may see less
easing needed on our side".
"Probably... we may debate more the normal two alternatives
-- to move or not to move," Singer said at the Reuters Central
European Investment Summit in Vienna, referring to the central
bank's next interest rate meeting.
"The whole picture has changed, on output figures (are)
down, but on the other hand on monetary figures, thanks to the
exchange rate developments, things are more relaxed. The
combination is ... better for moderate changes in monetary
policy than before."
Singer added, however, that the environment was changing
rapidly amid the global financial turbulence.
Singer was among a minority of bankers who advocated a
further 25 basis point rate cut in September.
The crown firmed sharply earlier this year on strong exports
and the perception of the central European country as a safe
haven, hurting manufacturers who saw their margins squeezed in
export markets.
The crown strength, along with a deteriorating growth
outlook, was behind the bank's 25 basis point interest rate cut
in August.
That brought the main 2-week repo rate to 3.50 percent,
below the main euro zone rate even after a 50 basis point cut by
the European Central Bank and other global policymakers earlier
this month.
But the crown has since dropped, to as low as 25.755 on
Wednesday, a level last seen in February.
"Definitely the kind of exchange rate we are observing now
seems to be much more natural for our economy than the kind of
exchange rate we observed at the peak of summer," Singer said.
"Inflation is unfolding in correspondence with our
expectations. We expect a fast fall of inflation and we are
inflation targetters, so the exchange rate is so far doing part
of our job," he said.
Singer said the bank was likely to revise downward its
growth outlook for next year, already among the more
conservative among forecasters, when it releases its quarterly
forecasts in November.
But he said there was no major trouble on the horizon.
"We will simply go from very nice growth to a moderate
growth scenario," he said.
He said a new Hyundai car assembly plant, due to be launched
next month, would add up to 1 percentage point to growth next
year.
(Editing by Patrick Graham)
