(Repeats story published on Aug 1)
* What: Czech interest rates
* When: Aug. 7, around 1000-1100 GMT.
* Central bank expected to keep rates flat, cut later
* A table with individual responses at []
By Mirka Krufova and Jan Lopatka
PRAGUE (Reuters) - The Czech central bank will most likely
leave interest rates unchanged at its Aug. 7 monetary policy
meeting despite its suggestions that it may ease due to the
strong crown's impact on future inflation and growth, according
to a Reuters poll.
The poll showed 14 out of 19 analysts said the bank would
stay put, although four of the governing board's seven members
have said they may cut and the most hawkish will be absent.
A cut may come later. Of the 14 predicting no change, eight
saw lower rates by the first quarter next year, even though the
Czech cost of money is already the lowest in the European Union
at 3.75 percent, 50 basis points below the euro zone.
Three saw a cut next month and another cut by the first
quarter. The median forecast was for the main repo rate at 3.50
percent a year ahead.
"In our baseline scenario, we expect the CNB to keep its
interest rates unchanged at 3.75 percent for the rest of this
year, as inflation is likely to revert upwards to 7 percent in
July and remain elevated in August," said Citibank analyst
Jaromir Sindel.
"Our forecast also reflects our understanding that the
current dovish comments are aimed at curbing the strength of the
crown and reducing the expectations of the market, which was
discounting one policy rate rise."
The Czechs would be the first in central Europe to reverse
the tightening cycle within the recent inflationary period,
after a series of hikes that raised the main rate from 1.75
percent in late 2005.
The Romanian central bank unexpectedly raised rates on
Thursday [] and the Poles left rates flat on
Wednesday but said more hikes may be in store [].
As recently as last month, the Czechs considered a hike, and
said inflation risks were skewed to the upside.
But central bank Governor Zdenek Tuma said last week the
crown's strength may hit the economy -- dependent upon exports
which suffer from currency strengthening -- and lead to a sharp
drop in inflation below the bank's 3 percent target next year.
The crown had soared by 18.7 percent year-on-year to hit a
record 22.925 to the euro last week, several times stronger than
the estimated trend rise corresponding to the fast-growing
central European economy.
It slumped back to around 24.0 per euro after verbal
interventions by Tuma and three of his board colleagues.
Analysts suggested that with inflation running at 6.7
percent in June, more than double the target level, the verbal
interventions had done enough and the bank would not cut now.
But Komercni Banka analyst Jiri Skop said the bank's new
quarterly inflation forecast, a policy driver due to be
presented at the Aug. 7 meeting, would likely be very dovish on
inflation, growth and projected market interest rates.
"In this context, the cut by 25 basis points at the August
meeting now seems very probable," he said.
"Like the CNB, we see GDP slowing significantly too (our
forecast for 2009 is 3.4 percent, the last CNB forecast was 4.0
percent)." He added, however, that inflation would likely remain
above target if the crown falls back to 24.5 at end-2008.
On the other side of the spectrum, two economists saw the
bank hiking by 25 basis points in the fourth quarter, citing
persistent inflation risks.
Tougher policy may also be reinforced by the fact that by
the end of the year the bank will turn its attention to its new
inflation target, which will be 2 percent, +/- 1 percentage
point, as of January 2010.
(Editing by Stephen Nisbet)
