* Czechs slash rates as C.Europe growth outlook worsens
* Hungary lays out IMF deal, including banking package
* Polish c.bank chief calls for lower rates
(Adds Czech c.bank, Slovak budget, updates market reaction)
By Michael Winfrey
Economics Correspondent, Central Europe and the Balkans
PRAGUE, Nov 6 (Reuters) - The Czechs joined Europe's major
central banks by slashing interest rates on Thursday and Hungary
unveiled a $3 billion plan to shore up banks in an effort to
ease the grip of the economic crisis on ex-communist Europe.
Poland's central bank chief said he was convinced it was
time to start lowering the cost of borrowing in the biggest
economy of a region where growth and inflation are falling
quickly as demand for its exports and access to credit dry up.
The Czech central bank (CNB) cut interest rates by a much
more than expected 75 basis points to a European Union low of
2.75 percent, the biggest move in more than six years and the
lowest level since mid-2007.
The decision came moments before sharp cuts by the Bank of
England and the European Central Bank and Swiss National Bank.
"The larger cut was driven by a sharp drop in inflation
connected with a deceleration of development," Czech Governor
Zdenek Tuma said. "The Czech economy is exposed mainly to the
euro zone and that is expected to slow down significantly."
The Czech crown lost 2.05 percent to the euro and interbank
lending rates fell 100 basis points and bond yields up to 40
basis points. Poland's zloty fell 2.4 percent[].
"This is a very clear signal that the CNB is very worried
over the slowdown in the Czech economy -- and rightly so," said
Lars Christensen, head of emerging markets research at Danske
Bank. "The cut should also increase the likelihood of rate cuts
in other countries in the region."
GROWTH SLIDING
Central Europe, long seen as a relative "safe haven" in
times of heavy emerging market turmoil, has thus far avoided
serious crisis. No banks have collapsed.
But since September, the global crisis has had two main
impacts. The collapse in demand from the euro zone, the region's
main export market, has hit producers. And the credit crunch has
made it harder for firms and consumers to borrow cash.
Producers in major exporters like Hungary, the Czech
Republic and Slovakia are cutting jobs, while bond market and
interbank lending liquidity has dried up and stock markets have
suffered heavy losses.
Czech Finance Ministry officials said they would likely cut
their 2009 growth forecast from 3.7 percent and neighbouring
Poland expects growth to slow to 3.5 percent, from 5.5 percent
forecast for 2008.
Analysts polled by Reuters had expected Polish policymakers
to wait until the first quarter of 2009 before cutting rates
from 6.0 percent now, but the head of the central bank indicated
that now a cut could come sooner.
"After the Czech central bank decision I'm now even more
convinced an easing cycle in Poland should be started," Governor
Slawomir Skrzypek told Reuters.
Hungary and Serbia's central banks have already had to hike
rates to prevent investors from fleeing their currencies, while
Romania is expected to hold fire for now.
Serbia has also moved into talks with the IMF on a stand-by
deal that it hopes will stall a slump in its currency -- down
another 2 percent to a 29-month low on Thursday.
Also on Thursday, Austria's Raiffeisen International
<RIBH.VI>, emerging Europe's second-biggest bank, cut its 2008
net profit forecast and put mid-term goals under review as weak
economic development will likely hit growth [].
And Slovakia's government planned budget cuts of around 2.4
percent of expenditure to make up for expected lost tax revenue.
HUNGARIAN IMF PLAN
Already heading for recession, Hungary said that as part of
a $25 billion EU, International Monetary Fund rescue package, it
would extend nearly $3 billion to shore up banks and cut its
budget deficit to boost economic stability.
Hungary's dependence on exports and past budget overspending
make it the most exposed of the EU's ex-communist members and
data on Thursday showed September industrial output shrank by an
annual 5.3 percent, confirming a bleak outlook [].
On Thursday, the government asked the IMF to provide 600
billion forints ($2.95 billion) in possible funding for
Hungarian banks considered to be of systemic importance to boost
confidence in the entire sector and promote lending.
"If we can tell the markets that not only is a bank doing
well but we can back it up with a guarantee, it can borrow at a
cheaper rate," said Central Bank Governor Andras Simor.
"With these shares, the government will get rights that
provide it with appropriate guarantees."
(For a Factbox on the IMF deal, click on []).
(Reporting by Jan Lopatka, Jason Hovet, Balasz Koranyi,
Sandor Peto, Peter Laca, and Dagmara Leszkowicz)
