* Czechs leave rates flat at record low
* Most analysts had expected cut, but mkt reaction minimal
* News conference at 1330 GMT
(Adds background)
By Jana Mlcochova
PRAGUE, June 25 (Reuters) - The Czech central bank defied
expectations for a quarter-point cut in interest rates on
Thursday, taking a breather from aggressive easing since last
August to leave rates at a record low of 1.5 percent
Ten of the 17 analysts polled by Reuters had expected the
bank would cut the main two week repo rate <CZCBIR=ECI> <CZRP=>
used to drain excess liquidity, in what could have been a final
cut in the present easing cycle by 25 basis points.
Analysts said the hold could have been due to the absence of
two central bank board members who had voted for 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 last August will have.
How many of the seven policymakers attend each rate-setting
meeting tends to vary depending on business trips and other
factors.
"It's a surprise. I don't 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," said Neil Shearing, an economist at
Capital Economics.
The bank called a news conference for 1330 GMT to explain
the decision. 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 and was close to that level at 1141 GMT
LITTLE HELP
The export-reliant Czech economy contracted by a record 3.4
percent in the first quarter as a steep drop in Western demand
hit industrial production and pushed down inflation across the
European Union's former communist eastern wing.
Price growth dropped to 1.3 percent in May, a tick above the
central bank's latest May 7 forecast, from 6.8 percent a year
earlier. It was also below the bank's target of 3 percent plus
or minus 1 percentage point, which will switch to 2 percent as
of 2010.
Analysts say monetary easing at home has had little impact
on demand and that a renewal of foreign orders will be the main
driver of any recovery.
Steep rate cuts have also not filtered through to companies
and households despite a drop in money market rates. Research by
the Czech Chamber of Commerce shows 76 percent of firms say lack
of financing has led to cuts in production.
Mortgage rates have stayed at around a minimum of 5 percent
since late last year.
The three-month Prague Interbank Offered Rate (PRIBOR)
<>, however, stands at 2.13 percent, down from 4.52
percent last October at the height of the credit crunch --
suggesting that at least banks are lending to each other.
Board member Eva Zamrazilova said this month that she was
aware the impact of monetary policy on the interest rates that
banks charge was a "soft spot", saying it was one of the reasons
why she voted against easing in May. []
Thursday's rate decision followed a 25 basis point cut on
Wednesday in Poland []. Hungary's central bank held
interest rates at 9.5 percent on Monday, resisting political
pressure, but signalled it could move once financial stability
returns. []
(Reporting by Jana Mlcochova; editing by Patrick Graham)
