(Adds crown reaction, trader quote)
PRAGUE, July 30 (Reuters) - The Czech central bank may
discuss a hefty 50 basis point interest rate cut when its
policymakers meet next Thursday, board member Pavel Rezabek
said, sending the crown currency lower.
Rezabek joined the ranks of Czech central bankers raising
the possibility of an impending cut from 3.75 percent. The
market had initially taken this talk to be merely a warning
designed to knock the currency down, rather than a likely policy
choice.
"I can imagine lowering rates," Rezabek, usually a dove on
the seven-strong board, told daily Mlada fronta Dnes when asked
about the next meeting. "I can even imagine discussion on
lowering rates by more than 25 basis points, for example by 50
basis points," he added in remarks published on Wednesday.
The Czech crown gradually weakened to a one-month low of
23.98 per euro after the comments <EURCZK=>, before ticking up
to 22.965 at 1240 GMT, down 1.1 percent from Tuesday.
The crown has dropped 4.5 percent in the past week since
central bank Governor Zdenek Tuma first raised the possibility
of lower rates, and was later joined by Vice-Governor Miroslav
Singer.
Fellow board member Eva Zamrazilova also said the risk of
the strong crown cutting inflation too much needed attention.
"The argument for cutting rates would be for me mainly that
the excessive strengthening of the crown is starting to be a
shock-like problem for the economy," Zamrazilova told daily
Hospodarske Noviny.
The crown hit an all-time high of 22.925 to the euro
<EURCZK=> on July 21 -- 18.7 percent up year-on-year -- on the
back of the country's solid economic fundamentals at a time of
global financial turmoil.
The central bank rhetoric marks a turnaround from the
previous outlook. This pointed to the chances of a rate rise to
tame inflation, which is expected to reach 6.9 percent
year-on-year in July according to a Reuters poll, more than
double the bank's 3 percent target.
(For details of poll please double click on []
A cut would make the Czechs the first in central and eastern
Europe to ease rates after the recent tightening cycle, although
the main rate is already the lowest in the European Union.
The Czechs' regional peers Slovakia, Poland, and Hungary
have held rates flat over the past two weeks and Romania is
expected to do the same on Thursday.
MARKET WAITING
Analysts have mostly said that while a cut is possible, they
expected flat rates in August unless the crown returns quickly
toward the record levels. However, the market has priced in a
rate cut, with forward rate agreements <CZKFRA> dropping 20-40
basis points over the past week.
"The market is counting around 80 percent that there will be
a rate cut," one Prague trader said. "Everything depends on the
(crown) level."
The Czech economy is highly open to trade, and the exchange
rate is a major factor influencing prices of imported goods and
thus also the inflation outlook and monetary policy.
Even when the crown was much weaker, the central bank
predicted that inflation would fall fast by early 2009 toward
the bank's target, which will drop to 2 percent as of 2010.
The most hawkish board member, Mojmir Hampl, has said he
would miss the Aug. 7 meeting due to a holiday.
(Reporting by Jan Lopatka and Jason Hovet; Editing by David
Stamp)
