Czech money rates fall, price in no near-term rate hike

...prompted 
markets to slash expectations of near-term interest rate rises. 
    Traders said forward rate agreements (FRA)  were now 
pricing in just one 25 basis point hike in official interest 
rates from 3 percent  by the year-end, erasing 
earlier bets on at least two quarter-point rises. 
    The 3x6 FRA  -- showing where three-month deposit 
rates  are expected to be in three months' time -- has 
fallen sharply to Thursday's 3.30/3.36 percent from a multi-year 
peak around 3.60 percent earlier this month. 
    Hawkish statements from Czech central bank (CNB) 
policymakers had previously led investors to raise stakes on a 
quarter point rate hike as early as this month to rein in 
buoyant consumer demand in the economy. 
    "The market has become a little bit irrational. People are 
selling (short rates) like crazy," said Dalimil Vyskovsky, debt 
trader at Komercni Banka in Prague. 
    "Should the central bank hike in August or in September, the 
market, judging by the current shape of the yield curve, would 
have simply got it wrong." 
    The two-year interest rate swap rate , a 
particularly sensitive instrument to shifts in the market's view 
on official rates, slid 6 basis points to 3.70/76 percent, down 
from 3.96 percent at the start of this month. 
    The steep drop in Czech rates and debt yields reflected 
growing concerns over distress in global credit markets and its 
impact on the wider economy, which have raised doubts about a 
further euro zone rate hike in September. 
    A 1.3 percent rally in the crown over the past week has also 
chilled expectations of any near-term interest rate increase. 
    A firmer currency helps tame inflation, which analysts said 
could allow the CNB to pause in policy tightening after a 25 
basis point rate hike in July, despite strong economic growth. 
    The crown jumped 0.8 percent to hit a five-month high versus 
the euro on Thursday. 
 

[PRAGUE/Reuters/Finance.cz]