(Repeats story published late on Thursday)
* Rates cut to record fresh lows, markets surprised
* Crown falls, market interest rates ease
* C.bank predicts lower inflation, market rates into 2011
* For HIGHLIGHTS click on []
By Jana Mlcochova
PRAGUE, May 6 (Reuters) - The Czech central bank surprised
the market with a 25 basis point interest rate cut on Thursday
and flagged low rates into the future, defying analyst forecasts
for no change as the Greek crisis drags down the crown currency.
The bank slightly cut its inflation forecast and central
bank Governor Zdenek Tuma did not exclude rates could go even
lower.
"Our forecast for the Czech economy shows that interest
rates should perhaps be a bit lower and the cut by 25 basis
points corresponds to that," he said.
"Risks are very significant on both sides and of course it
will depend how these risks will develop in the nearest weeks
and months, and according to that we are ready to decide
further, in either direction."
The move brought the main two-week repo rate <CZCBIR=ECI>
<CZRP=>, used to drain excess liquidity, to a new record low of
0.75 percent, below the euro zone's main refinancing rate which
was confirmed at 1 percent on Thursday.
Two-year interest rate swaps fell 12 basis points after the
rate decision to 1.71/79 percent, and the 6x9 forward rate
agreement <CZK6X9F=>, an indication of future rate moves,
dropped to 1.29 percent from 1.43 percent. The crown fell 0.9
percent to 26.19 to the euro by 1325 GMT.
The Czech central bank cut the Lombard rate used for
overnight lending to banks by 25 basis points to 1.75 percent,
and left the discount rate paid to banks for overnight deposits
unchanged at 0.25 percent.
The bank also predicted significantly lower market interest
rates into 2011.
Tuma said the main reason behind the bank's new forecasts
was the lower outlook for rates in the euro zone.
In other emerging European countries, Hungary and Romania
are still on a policy easing tack, although interest rates are
at a record low 5.25 and 6.25 percent, and Romania said on
Thursday there was still room for further cuts. []
The Czech decision to cut rates, achieved by a 4-2 majority,
extended an easing cycle most analysts thought had already
finished.
NO HIKES FOR LONG TIME
Sixteen out of 19 analysts surveyed by Reuters had expected
no change and the market had erased earlier pricing in for a
rate cut as the Greek crisis put pressure on the crown.
"After the Greek problems escalated and the crown weakened,
we did not expect a cut," said Pavel Sobisek, chief economist at
UniCredit in Prague.
Tuma said the crown's drop took it below the forecast levels
but that it did not mean much for now.
"Of course after the weakening in the past days the crown is
rather weaker (than forecast) but it is not possible to make
strong conclusions from that," Tuma said.
Capital Economics said rate rises were a long way off.
"Today's move lends support to our view that rate hikes
remain a distant proposition in much of the region. Accordingly,
we still expect rates to remain on hold at record lows in the
Czech Republic until mid-2011 at the earliest," Capital
Economics said in a note.
"By contrast, the market is pricing in rates rising sooner
and faster."
(Writing by Jan Lopatka, Editing by Ron Askew and Susan
Fenton)
