PRAGUE, Nov 6 (Reuters) - The Czech central bank lowered its
key two-week repo rate by 75 basis points to 2.75 percent on
Thursday, much deeper than market expectations, as inflation
risks fade and growth slumps due to a euro zone slowdown.
In an Oct. 31 poll, 13 of 17 analysts had forecast a 25
basis point cut, while the remaining analysts had expected a
half-point reduction in borrowing costs [].
The Czech central bank gave no reasons for its decision in a
statement, but will present its new inflation and growth outlook
at a regular press conference at 1430 GMT.
* The Czech crown <EURCZK=> fell almost 1 percent after the
move.
COMMENTS
BANK CESKA SPORITELNA IN RESEARCH REPORT
"The CNB changed its attitude as a risk manager: better to
cut more and reduce negative risks, and after the situation
calms down to normalise rates faster."
"We expect further rate cuts to follow, and rates at 2.25
percent in 2009."
CURRENCY TRADER FROM LONDON BANK
"It's surprising. It gives them a chance now to really step
back and see whether the slowdown forecast for 2009 is correct.
It's a bold move, but ultimately not bad in the current
environment where they are worried about growth."
"The market wasn't expecting this... but is drifting back
lower (stronger crown) now."
"The Czechs have also said they don't want excessive Czech
crown strength, so if the ECB goes 50 bps as well, the crown is
not offering a premium over the euro. So it's not quite as
attractive for the carry players."
CURRENCY TRADER FROM FOREIGN-OWNED BANK IN PRAGUE
"Obviously this is a surprise. (The rate of) 25 crowns to
the euro used to be a good horizontal level, so we hit some
offers up there. But overall I can't see euro/Czech crown
trading lower (stronger) after this."
LARSH CHRISTENSEN, HEAD OF EMERGING MARKETS RESEARCH, DANSKE
BANK
"This is a very clear signal that the CNB (central bank) is
very worried over the slowdown in the Czech economy -- and
rightly so. This is an aggressive move, but its hard to be
critical about that given the fact that Czech GDP is likely to
drop in Q3 and Q4 (percent quarter on quarter) and inflation in
the coming months is likely to come down significantly.
"The CNB's bold action has sent the CZK significantly weaker
and the weakness should be spreading to other currencies in the
region."
"The cut should also increase the likelihood of rate cuts in
other countries in the region. While rate cuts are unlikely from
the Hungarian and Romanian central banks anytime soon, the
pressure for the Polish central bank to follow CNB should be
mounting. We could see the NBP cut rates already by the end of
the month or in December."
MICHAL BROZKA, ANALYST, RAIFFEISENBANK
"The crown strength, the outlook for economic weakening and
falling inflation certainly create room for lowering rates,
however the high volatility of the crown says that the CNB
(central bank) should be more cautious while cutting rates. In
the past weeks, there have been words from the CNB that CNB
members can imagine cutting by 25 basis points rather than 50."
RADOMIR JAC, CHIEF ECONOMIST PPF ASSET MANAGEMENT
"It is a brave and surprising solution, and I applaud. In
the range of what they could have done, I appreciate that they
went the brave way."
"I did not expect a cut by 75 basis points, but I think that
if we look at the outlook for the global economy, which will
simply have its impact, and if we look at the outlook for Czech
inflation, which will go substantially lower... then 75 is
justified."
VOJTECH BENDA, CHIEF ANALYST, ING WHOLESALE BANKING PRAGUE
"It's a surprise. It's quite probable that the decision was
supported by an expected bold rate cut by the European Central
Bank. The Czech National Bank probably wanted to keep a negative
interest rate differential."
DAVID MAREK, CHIEF ECONOMIST, PATRIA FINANCE
"It is a surprise, but very positive, because the Czech
National Bank reacted not only to the worsening economic
conditions, but also to the stress in the Czech interbank
market."
For Czech money markets data click on <CZKVIEW>
For Czech money guide click on <CZK/1>
For Czech benchmark state bond prices click on <0#CZBMK=>
For Czech forward money market rates click on <CZKFRA>
(Writing by Jason Hovet; Editing by Michael Winfrey)
