PRAGUE, June 25 (Reuters) - The Czech central bank kept its
main interest rate flat at a record low 1.5 percent on Thursday,
defying market expectations for a quarter percentage-point cut.
The small and highly open economy has contracted by a record
3.4 percent in the first quarter as vanishing demand from the
recession-hit euro area hit the country's output.
Ten of the 17 analysts polled by Reuters saw the bank
trimming the main two week repo rate <CZCBIR=ECI> <CZRP=> used
to drain excess liquidity in a final cut in the present easing
cycle as the downturn stirs disinflationary pressures.
Analysts said the move could have been due to the absence of
two central bank board members who had voted for rate easing at
the bank's previous meeting, as well as a possible desire by
policy makers to see what effect the 2.25 percentage points in
cuts they have made since August will have.
The move followed a 25 basis point interest rate cut on
Wednesday in Poland to 3.5 percent.
Hungary's central bank, however, held interest rates at 9.5
percent on Monday, resisting political pressure to reduce
borrowing costs to help the country's stricken economy but
signalling it could move once financial stability returns.
The bank called a news conference for 1330 GMT to spell out
reasons for the decision.
COMMENTARY:
DAVID MAREK, CHIEF ECONOMIST, PATRIA FINANCE
"It is a surprise, perhaps due to the board not being
complete during the vote, however, the reasons for further
cutting of the rates did not disappear."
"Low inflation, a relatively strong crown and deepening
recession remain as reasons for further easing of the monetary
conditions."
PETR DUFEK, ANALYST, CSOB
"The decision is in line with our expectation. I think it is
better to wait for further data from the economy, perhaps even
for the next prognosis."
"Already now the main CNB's rate is at the lowest level in
history, and the impact of another possible drop in rates would
only be negligible."
AGATA URBANSKA, ANALYST, ING
"It was a close call, especially with the currency
performance in the past week. It just wasn't there long enough
to tilt the board toward a cut."
"Earlier throughout the month, we have had data...
surprising on the upside, suggesting the bottom for private
consumption or investments has been reached."
"If the currency strength continues through July (a cut) may
be an option."
RAFFAELLA TENCONI, CHIEF ECONOMIST, WOOD & CO.
"A very surprising move from the MPC, given the dovish
rhetoric recently and clear evidence that the economy is weaker
than they had anticipated at the May forecast update."
"We believe the tone of the MPC will remain dovish, implying
further loosening is still on the table. Perhaps today's
decision was influenced by still unresolved developments in
Latvia and the potential for a devaluation in the near term."
PAVEL SOBISEK, CHIEF ECONOMIST, UNICREDIT BANK, PRAGUE
"It is a surprise to certain extent, but the opinion of
whether they would cut or not was not absolutely clear-cut."
"I would say that in the context of the recent crown
strengthening, the CNB makes clear by this, that it will not
allow itself to be influenced by some short-term fluctuation in
the rate, which I think is consistent with their longer-term
policy."
JAN VEJMELEK, HEAD OF ECONOMIC AND STRATEGY RESEARCH,
KOMERCNI BANKA
"We expected it. What could have played a role was that the
two (board members) who voted for a cut last time were missing."
"The may want to wait for their next quarterly forecast in
July and see if the improved confidence indicator has translated
to the real economy. And if not they may cut then."
NEIL SHEARING, ECONOMIST, CAPITAL ECONOMICS
"It's a surprise, I dont' think the easing cycle is over. We
were going for a 25 basis point cut, and we think there might be
one more after that."
"The recent improvement in some of the data in industrial
production, the agressive rundown that we've seen in stocks
seems to have eased, and they may have been reassured by that."
"If the recovery disappoints, I think we could easily get
one or two more cuts. I guess it's a reflection that they're
probably waiting to see what the agressive easing earlier this
year will have. They've cut rates from 3.75 to 1.5, which, for
their usual cautious policy stance, is pretty aggressive."
MARKET REACTION
The Czech crown <EURCZK=> edged up a touch to 26.04 shortly
after the decision before easing back to 26.07, where it stood
earlier.
(Reporting by Jana Mlcochova and Jason Hovet; Editing by
Michael Winfrey)
