PRAGUE, Aug 7 (Reuters) - The Czech central bank's governing
board voted 6-0 to cut interest rates by 25 basis points on
Thursday, surprising analysts who had expected no change.
The following are selected comments by Governor Zdenek Tuma
at a news conference following the rate decision.
ON FORECASTS, RATES
"The forecast gives a relatively clear picture and we assume
that, with the cut in rates that we decided, we should reach a
decline in inflation towards our target during the next year."
"We also discussed a cut by 0.5 percentage points."
"That the decision was unanimous does not mean that the
decision-making was easy. There was a proposal to cut rates by
0.5 percent, but primarily, the debate was whether to keep rates
(on hold) or cut by 0.25 percentage points."
"Arguments for keeping rates flat were relatively strong."
"It is possible that there will be another cut in rates,
which the trajectory of (market) interest rates (indicates), but
the trajectory does not oblige the bank board to cut rates."
ON ECONOMY
"It has been confirmed that the Czech economy is in a
declining phase, and the forecast shows that we now expect more
dampening that the last time, which is quite clearly an
anti-inflationary development."
"I assume that the market has already priced in ... a cut in
rates and I personally consider it very likely... that we could
come back to appreciating trend."
"At the moment when the economy is significantly slowing, it
is very likely that the risk is of pro-inflationary pressures
declining, rather than anti-inflationary pressures rising."
ON INFLATION RISKS
"In the horizon of monetary policy, in the period of four to
six months, most inflationary pressures will fade during 2008."
"Risks, both inflationary and anti-inflationary, are going
in both directions.
"We see the risk of wage growth. Wages are growing faster
than we expected in our base scenario. We assumed moderate wage
growth, but it can happen that wages will grow faster than we
expected."
ON RISKS TO GROWTH
"We have reached the peak of the economic cycle. The drop in
output is not connected only with the exchange rate."
"We had expected already in the previous forecast that the
economy would slow this year, mainly on lower real income growth
... On the top of that, mainly in comparison (with the previous
forecast), the exchange rate is adding to that to a large
extent."
"We have no target level for the exchange rate. That is
valid, despite my colleagues and I commenting quite strongly on
the rate of appreciation."
"In my opinion, to a large extent the lowering of rates has
already been reflected in the market so I do not believe that
the lowering we decided on today should influence the exchange
rate in any fundamental way in the coming weeks."
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(Reporting by Jan Lopatka; Editing by Michael Winfrey)
