PRAGUE, Aug 7 (Reuters) - The Czech central bank (CNB) cut
its key interest rate by 25 basis points to 3.5 percent on
Thursday, the lowest in the European Union, surprising analysts
who had predicted no change.
In an Aug. 1 poll, 14 of 19 market watchers said they
expected the bank to hold fire on rates despite suggestions from
policymakers that they could ease policy due to the strong
crown's impact on inflation and future growth [].
After the move, the Czech crown fell to six-week lows,
dropping to 24.125 to the euro <EURCZK=> from 23.98 ahead of the
announcement. It recovered to 24.08 at 1054 GMT.
Following are analysts' comments on the rate move.
OLDRICH KOERNER, DEPUTY ECONOMIC DIRECTOR, CZECH UNION OF
INDUSTRY AND TRANSPORTATION
"We are happy. We were hoping that this would happen and our
exporters were calling for this move."
"We expect the crown to weaken further, but mainly we expect
it to return to its appreciation trend from recent years when it
would firm only at some 3 percent annually, which we can bear."
SILJA SEPPING, ANALYST, LEHMAN BROTHERS
"The CNB is clearly concerned about the possibility of crown
appreciation leading to inflation undershooting (its target)
next year and the outlook for growth."
"We had expected them to wait for the peak in inflation and
more evidence from the real economy before easing and to monitor
FX developments. But after the more proactive decision today,
the bank will probably ease again before the end of the year."
VOJTECH BENDA, SENIOR ECONOMIST, ING WHOLESALE BA
"I expect rates stable for some time. Inflation is likely to
resume towards 7 percent but the crown is likely to weaken, so I
don't expect a change in rates very quickly."
"The new inflation projection will be important... It will
show whether the anti-inflationary phenomena will prevail when
compared with the last forecast."
NEIL SHEARING, EMERGING EUROPE ECONOMIST, CAPITAL ECONOMICS
"It's a bit of a surprise. They're in a position where they
are playing a fairly risky game, actually. It's clearly aimed at
taming the currency and they're clearly concerned that they're
not able to talk the currency down."
"Therefore, they're sort of comfortable with cutting
interest rates. But of course the bigger picture is inflation is
still well above target."
"Growth looks like it is slowing, but inflation
expectations, if they take root at a higher level, they could be
sowing the seeds for a higher period of inflation further ahead
... It's still a risky strategy, I think."
PAVEL SOBISEK, CHIEF ECONOMIST, UNICREDIT, PRAGUE
"The central bank actually delivered what the market had
expected. There was a difference between the opinion of analysts
and the market. At the trading level, there was an expectation
of a 25 basis point (cut), and that happened."
"I think the central bank wishes the crown were even lower,
and the crown will either weaken on its own, or this step should
be repeated sometime in the autumn."
DAVID MAREK, CHIEF ECONOMIST, PATRIA FINANCE
"We expect another rate cut at the end of the year or the
beginning of next year, as the times of high inflation are
definitely over."
"The crown began to weaken immediately and I also expect a
correction on the interest rate swaps and FRA markets. Bonds are
likely to benefit from the news."
RAFFAELLA TENCONI, ECONOMIST, DRESDNER KLEINWORT
"We expected them to stay on hold this month but cut already
in September, waiting for a clearer stance from the ECB."
"This decision signals the (central bank) is highly
concerned about growth. The next move down is likely to come
soon again."
(Reporting by Jana Mlcochova, Writing by Michael Winfrey)
