* Czech c.bank seen cutting rates by 25 bps on May 7
* Weak economy seen outweighing currency drop
* For a TABLE with forcasts, click on []
By Mirka Krufova and Jan Lopatka
PRAGUE, April 30 (Reuters) - A darker economic outlook will
likely lead the Czech central bank (CNB) to cut interest rates
by 25 basis points at its May 7 meeting, a Reuters poll showed
on Thursday.
A narrow majority -- nine out of 16 analysts -- forecast the
bank would ease policy again after pausing in March, putting
aside concerns that a weaker currency could lift prices -- a
dilemma faced by a number of central banks in the region.
Three analysts saw no change next week but another cut at
meetings in June or August. Two of those forecasting a cut on
May 7 expected another cut in June.
A quarter-point reduction would bring the main two-week repo
rate, used to drain excess liquidity, to an all-time low of 1.50
percent <CZCBIR=ECI> <CZRP=>, just 25 basis points above the
European Central Bank's main rate.
"The decision on May 7 will be a close call, as the
policymakers are likely to weigh downward risks to gross
domestic product against concerns over excessive crown
depreciation," said Svitlana Maslova, an analyst at Barclays
Capital.
"This trade-off was stressed in the recent comments of the
CNB board. We look for a 25 basis point interest rate cut at the
meeting."
Poland's central bank paused with interest rate cuts for the
first time since November on Wednesday, citing concerns over
inflation and the weakness of the zloty.
But policymakers signalled they would be watching their main
trading partners for signals on the economic recovery and that
more cuts may be in the pipeline. Hungary also held rates
earlier this month, due to inflation fears.
DECLINE
The bank has cut its main rate by 200 basis points since
August last year as the export-driven central European economy
slid deeper into a recession.
Industrial output dropped by 17.5 percent year-on-year in
March, a slight improvement from a 23.4 percent slump in
February. []
The bank is expected to cut its full-year GDP outlook to a
contraction of about 2 percent, from its previous forecast of
-0.3 percent. The International Monetary Fund has forecast a 3.5
percent decline.
As the economic outlook for eastern Europe darkened, the
crown has slid back, driven by investors' global run for safety
as well as concerns that financing for growth and banks in the
region will be squeezed by the global credit crunch.
The crown has been trading at an average rate of 26.955 to
the euro <EURCZK=D3> since the beginning of the year, below the
bank's full-year estimate of 25.80. It has recovered from a
February low at 29.69 to Thursday's 26.71.
The Czech central bank does not target the exchange rate,
but its level is a significant factor in policymaking because
its swings feed fast into prices in an economy whose foreign
trade equals over 130 percent of gross domestic product.
"We see inflation in 2010 only slightly below the CNB target
at 2.0 percent and thus not requiring any strong action (on the)
policy rate from the pure inflation targeting point of view,"
said Jiri Skop, an analyst at Komercni Banka.
"Our forecast of stable rates is supported also by our
outlook for further Czech crown losses in the near future -- the
CNB board looked very scared in its previous comments when the
Czech crown was quite weak."
(Editing by Patrick Graham)
