By Michael Winfrey
PRAGUE, Sept 25 (Reuters) - Czech and Romanian policymakers
left interest rates on hold on Thursday, as expected, but even
as inflation eases, analysts said idiosyncratic factors could
cause a temporary divergence in the region's monetary policies.
The Czechs left their main two-week repo rate unchanged at
3.5 percent -- the second lowest in Europe behind the Swiss and
75 basis points under the European Central Bank -- while Romania
was flat at 10.25 percent.
The moves mirrored the central bank in Poland, emerging
Europe's largest economy, which left the main rate at 6.0
percent on Wednesday. They also precede another forecast hold in
Hungary next Monday.
After surging prices forced central banks to hike the cost
of borrowing early this year, inflation has eased since July and
the global slowdown has squeezed demand, helping banks hold off
on further tightening or, in the case of the Czechs, cut rates.
But analysts said the countries may diverge from a single
trend as Czech exports are hammered by the euro slowdown,
Romania overheats and as its November election fuels spending,
and the Poles wrestle with domestic demand and euro entry.
"At the moment, we're in a wait-and-see mode, but we seem to
be approaching a period of divergence in rate decisions," said
Neil Shearing, an economist with Capital Economics.
Currencies trimmed some losses following the decisions, with
the Czech crown down 0.1 percent at 24.36 to the euro at 1040
GMT after falling around 0.5 percent earlier.
Romania's leu <EURRON=> was steady at 3.68 per euro and the
zloty <EURPLN=> fell 0.2 percent to 3.334 versus the euro.
DIVERGENCE
The Czechs -- whose exports make up 70 percent of their
economy -- are more exposed than Poland or Romania to the euro
zone slowdown. They were the first to end the regional
tightening trend in August with a 25 basis point rate cut.
The central bank's latest economic forecast from August sees
GDP slowing to 3.6 percent in 2009, from 4.1 percent this year.
It has also warned a steep drop in inflation from 6.5
percent in August could cause it to undershoot its target band
of 3 percent plus or minus one percentage point, and analysts
expect another rate cut this year.
Poland is less exposed as its larger domestic market makes
up a larger part of the economy, but it faces stronger consumer
demand, which is fuelling price growth.
Analysts say the government's recently proclaimed goal of
preparing itself by 2011 for the euro -- with euro zone entry
likely a year later -- may prompt tightening and a Reuters poll
earlier this month forecast a 25-basis point rise in October
[].
Central bank doves have suggested slowing growth may help
ease the pain on consumers' wallets but, after leaving rates on
hold, the central bank made clear it in a statement that it
could hike again to hit its 2.5 percent inflation target.
"My personal opinion is ... one more hike is necessary,"
Wasilewska-Trenkner from the central bank's 10-strong
rate-setting MPC told Radio PiN. Poland's inflation was 4.8
percent in August.
Romania's central bank halted its tightening cycle after
seven consecutive hikes, signalling optimism inflation has
peaked, but analysts cautioned that another rate hike could not
be ruled out if fiscal policy was loosened ahead of the Nov. 30
parliamentary election.
Inflation is easing, although it is expected to overshoot
this year's goal of 2.8-4.8 percent, versus a three-year high of
9 percent in July. Its economy is overheating, with growth at a
European Union high of 9.3 percent in the second quarter.
That situation could be worsened if the government raises
spending on welfare and other items to boost its popularity
ahead of the vote.
Some economists expect such a move and say it could threaten
the country's 2014 euro zone entry goal, as per President Traian
Basescu's warning in parliament on Wednesday.
"Depending on any significant budget deficit deterioration,
the central bank could decide to hike at the final meeting this
year in October," said Nicolaie Alexandru-Chidesciuc from ING
Bank in Bucharest.
(Additional reporting by Jan Lopatka in Prague, Justyna Pawlak
in Bucharest and Pawel Florkiewicz in Warsaw)
