*Crown seen weakening against euro by 2.4 pct in 6 months
*Crown to drop on worsening growth outlook
*Poll details on <CZ/ECON07>
By Mirka Krufova and Jana Mlcochova
PRAGUE, Aug 19 (Reuters) - The Czech crown <EURCZK=> is
expected to weaken 2.4 percent versus the euro over the next six
months, highlighting expectations for a further reduction in
borrowing costs following a surprise cut this month, a Reuters
poll showed on Tuesday.
The 17 analysts in the poll produced a median forecast for
the currency to ease to 25.00 to the euro within six months and
rebound to 24.50 in a year's time.
The Czech currency rose to a record high of 22.925 to the
euro on July 21, an 18.7 percent annual rise, before central
bankers verbally stepped in by saying the strong crown
threatened to lead to an undershooting of its inflation target,
demanding a looser policy.
The central bank (CNB) voted unanimously on Aug. 7 to cut
the main interest rate by 25 basis points to 3.50 percent, or 75
basis point below the euro zone's key rate.
The unit has weakened to as low as 24.60 to the euro since.
The crown traded around 24.40 on Tuesday.
With a 11.9 percent annual rise, the crown still outpaces
other central European currencies, except for the Polish zloty
<EURPLN=>, which has gained 12.7 percent over the past year. The
Slovak crown <EURSKK=> has added 9.9 percent, while the
Hungarian forint <EURHUF=> rose 8.5 percent.
"We are bearish on the Czech crown, which lost its shine
after the CNB changed its bias to easing as the first central
bank in the region," said Piotr Matys, an analyst at 4castweb.
LOWER GROWTH
Czech economic growth eased more than expected in the second
quarter as a euro zone slowdown hits regional economies and some
analysts said the central bank may cut interest rates again in
the face of a bleak growth outlook.
"Concerns about domestic fundamentals increased very
recently following the release of the second quarter GDP and
weighted heavily on the currency," 4castweb's Matys said, adding
a firmer U.S. dollar <EUR=> is another factor weighing on the
Czech currency.
"We expect a further correction for the crown to reach a
balanced level as we think the crown is still overvalued despite
its recent weakening," said David Marek, chief economist at
Patria Finance, adding he expects another cut in lending costs
by the end of the year.
Marek said he expects the crown to resume its long term
appreciation path of 3 percent annually as of the next year.
The poll showed a wide gap between individual forecasts,
illustrating an unsettled market. The strongest forecast for
half a year ahead saw the crown at 23.50 while the weakest
called for 26.00.
The median forecast for one month ahead called for a drop to
24.50. In three months the currency was seen at 24.70.
For a TABLE with poll forecasts, click on []
(Editing by Victoria Main)
