(Adds Czech, Romanian central bank comments)
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 specific factors could cause
monetary policy divergence in the region until next year.
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
stayed flat at 10.25 percent for the first time in 11 months.
The moves mirrored Poland, emerging Europe's largest
economy, which left the main rate at 6.0 percent on Wednesday.
They also preceded 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 zone slowdown,
Romania overheats as its November election fuels spending, and
the Poles wrestle with domestic demand and preparations for
adopting the euro.
"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.
In the longer run, economists have said a weaker European
economy is softening the policy outlook across the region.
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 Czech bank's board voted 4-2 for flat rates on Thursday,
and Governor Zdenek Tuma signalled more cuts may come,
particularly in the light of lower expected price pressures.
"This could clearly lead to the conclusion for a cut," he
told a news conference, adding that severe market turbulence was
a main reason they held fire.
"In the end the opinion in favour of leaving (rates flat)
moderately prevailed, not so much because the fundamental
arguments for lowering would be put in doubt, but mainly with
regard to the large uncertainties and volatility of a number of
variables in the past weeks."
The bank has 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.
POLES, ROMANIANS LESS DOVISH
Poland, with a larger domestic market, is less exposed to
the euro zone slowdown, but it faces consumer-led 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. A Reuters poll
sees a 25-basis point rise in October [].
Romania's central bank halted its rate hiking cycle after
seven consecutive hikes, although it said persistently high
inflation called for a tight stance for some time to come.
Easing inflation is still expected to significantly
overshoot this year's 2.8-4.8 percent goal, "requiring the
maintenance of a tight monetary policy stance for a longer
period", the bank said.
Analysts have also cautioned that another rate hike could
not be ruled out if fiscal policy was loosened ahead of the Nov.
30 parliamentary election. Its economy is also overheating, with
second quarter growth at a European Union high of 9.3 percent.
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
President Traian Basescu warned 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; editing by Stephen
Nisbet)
