INSTANT VIEW 4-Czech Dec CPI drops to within c.bank target

                                
 PRAGUE, Jan 9 (Reuters) - Czech consumer prices dropped in
line with expectations in December, putting the annual inflation
rate at 3.6 percent, from 4.4 percent a month earlier, data
showed on Friday.
                                
 The central bank targets annual inflation at 3 percent, plus
or minus 1 percentage point.
****************************************************************
KEY POINTS:
(pct change)          Dec          Nov          Nov forecast
 month/month         -0.3         -0.5         -0.3
 year/year            3.6          4.4          3.6

 CENTRAL BANK FORECAST: The figure comes below the central
bank's forecast, which envisaged a 5.1 percent annual rate for
December in its quarterly projection made in November.

 Details of December inflation data..............[ID:nPRA002310]
 Details of December jobless data................[ID:nPRA002311]

- The monthly price drop was due mainly to a decline in fuel
prices, which dropped by 10.5 percent.
- Food prices edged up 0.1 percent month-on-month.
- Tobacco product prices rose 0.5 percent month-on-month.

COMMENTARY:
                                
 PATRIK ROZUMBERSKY, ECONOMIST, UNICREDIT BANK CZECH REPUBLIC
                                
 "We expect a further steep drop in inflation down to 2
percent. From the year-on-year growth, we will see evaporate the
influence of implementing regulatory payments in the health care
system, and also the effect of the increase in VAT from 5
percent to 9 percent at the beginning of last year."
                                
 "We expect that by the first half of the year, the CNB will
lower its base rate by a further 1 percentage point to 1.25
percent."

                                
 RADOMIR JAC, CHIEF ANALYST, GENERALI PPF ASSET MANAGEMENT
                                
 "The decline in CPI is driven not only by foods and oil but
also by core-inflation items. Together with indications of
collapsing exports and industrial output, the data are
supportive for further monetary easing."
                                
 "We expect the Czech National Bank to deliver a 50 basis
point interest rate cut at its February meeting and to cut rates
further to new historical lows in meetings to come."
                                
 
                                
 HELENA HORSKA, ANALYST, RAIFFEISENBANK
                                
 "This year inflation will fall under the Czech national
bank's target, and, not only that, very likely under 1
percent..."
                                
 "It is not strange that we expect a further sharp reduction
in interest rates. In the first half of the year, the main rate
should fall to 1.5 percent from 2.25 percent. Such a low rate we
have not yet seen."
                                
 
                                
 DAVID MAREK, PATRIA FINANCE, CHIEF ECNOMIST
                                
 "Inflation fell in line with expectations and is going to
fall further.
                                
 "The main reason for the price level drop are fuel prices. A
fast falling drop in oil prices had to have an impact..."
                                
 "We expect that inflation will continue to fall sharply in
upcoming months too, and the impact of the last year's tax
reform will fade."
                                
 "This opens room for another fast easing in monetary policy
that could support the economy."
                                
 
                                
 JAROMIR SINDEL, CITIBANK, ANALYST 
                                
 "It confirms the disinflation trend that was expected
towards the end of the (last year). If we look at the annual
phase that it adds to a strong basis effect from the beginning
of 2009, so we expect inflation falling to levels around 2
percent in the first half of 2009. That will enable the scenario
of a further reduction in interest rates below historical lows
of the Czech central bank. 

MARKET REACTION:
                                
 The Czech crown <EURCZK=> fell to 26.45 to the euro by 0824
GMT from 26.29 before the data.
                                
 
BACKGROUND:
- The central bank decreased the key two-week repo rate by 50
basis points to 2.25 percent <CZCBIR=ECI> on Dec. 17.
- Report on last Czech c.bank rate decision.......[ID:nLH141377]
                                
                [ID:nLH86292] [ID:nPRA002276] [ID:nPRA002278]
- The central bank (CNB) targets headline inflation, which it
seeks to keep at 3 percent year-on-year, allowing for
fluctuations by plus/minus one percentage point from this level.
- The CNB's quarterly prediction sees consumer price inflation
of 2.3 percent in third quarter of 2009 and 2.0 percent in the
first quarter of 2010. Consumer inflation net of impact of
indirect tax changes is seen at 2.3 percent in the third quarter
of 2009 and 2.0 percent in first quarter of 2010.

LINKS:
- For further details on December other past inflation data,
Reuters 3000 Xtra users can click on the Czech Statistical
Bureau's website:
                                
 http://www.czso.cz/eng/csu.nsf/kalendar/2004-ISC

- For LIVE Czech economic data releases, click on       <ECONCZ>
- Instant Views on other Czech data                 [CZ/INSTANT]
- Overview of Czech macroeconomic indicators            [CZ/ECI]

- Key data releases in central Europe    [CEE-CONVERGENCE-WATCH]
- For Czech money markets data click on                <CZKVIEW>
- Czech money guide                                      <CZK/1>
- Czech benchmark state bond prices                   <0#CZBMK=>
- Czech forward money market rates                      <CZKFRA>

 (Reporting by Jana Mlcochova)