By Karolina Slowikowska
WARSAW, July 22 (Reuters) - Central European central bankers
gave signs on Tuesday that the region's rate hike cycle may end,
with the Poles pointing to a growth slowdown and Czechs holding
up the strong crown as a possible reason to cut rates.
The two countries, along with some of their neighbours, have
hiked the cost of borrowing since last year to fight rampant
price growth but are also struggling to keep robust growth
chugging along.
However, monetary tightening has combined with record-strong
currencies, which have jumped on expectations of further rate
hikes, and a slowdown in the euro zone to put the brakes on the
region's economic expansion.
On Tuesday, a strong comment from the head of the Czech
central bank, who reiterated a statement by a colleague from
earlier this month that the strong crown could lead to a rate
cut, pushed the unit down and caused other currencies to follow.
In Poland, Monetary Policy Council member Stanislaw Nieckarz
told Reuters the euro zone decline and strong zloty meant growth
was expected to slow to 3.5 percent in the fourth quarter, well
off the 6.1 percent from January to March.
Nieckarz, seen by market watchers as a dove on the 10-member
Council, brushed off calls for further rate hikes -- a possible
jab at the Organisation for Economic Cooperation and Development
which said last month Poland may have to hike rates as high as 7
percent to combat inflation.
"In this situation, the calls for further tightening of
monetary policy can be seen as exaggerated," Nieckarz said.
His comments came just before Polish Central Bank Governor
Slawomir Skrzypek told parliament the bank would aim to conduct
policy for stable growth.
Poland's central bank has raised rates eight times in the
current tightening cycle to bring the key interest rate to 6
percent in June, from a record-low 4 percent in April 2007.
CURRENCIES, WAGES
Poland, the Czech Republic and Hungary, which held interest
rates stable on Monday, have been helped in the fight against
inflation by record gains on their currencies this year.
The zloty has appreciated 4 percent in July alone against
the euro and 9.8 percent this year. The Czech crown <EURCZK=>
has jumped 1.9 and 12.2 percent respectively, while the
Hungarian forint <EURHUF=> is up 2.37 and 8.9 percent.
Inflation has stabilised across the region after a spike in
oil and food prices combined with strong domestic demand to
cause a surge at the start of the year. Inflation picked up
slightly to 4.6 percent in Poland in June but eased a touch in
both the Czech Republic and Hungary to 6.7 percent.
Polish and Czech price growth is expected to rise again in
the next few months, but the latter is then seen plummeting due
to a low base effect from administrative effects this year.
Zdenek Tuma, the head of the Czech central bank, said in an
interview with Bloomberg that the crown's level may lead to an
undershooting of the central bank's 3 percent 2009 inflation
target and could prompt a cut from the 3.75 percent main rate,
which is at a 50 basis point discount to the euro zone's.
"The debate we had at the last monetary session, whether to
keep or raise interest rates, is over at this point -- now there
will be a debate on whether to leave or lower rates," Tuma told
Bloomberg.
"Should the crown remain at the current levels or further
appreciate, I can't rule out that there would be a debate on the
table over how much to cut."
His comments sent the crown currency -- deemed an emerging
markets safe-haven investment -- down more than 1.4 percent to
23.26 per euro. The zloty dropped to 3.2395, from 3.2269 and the
forint fell to 230.10 per euro from 228.65.
A normally hawkish Polish policymaker, MPC member Marian
Noga, said the council could wait until October before deciding
whether rates needed to be raised further.
"We have to wait until October, when the September (wages)
data will be out. If inflation eases and I additionally see a
drop in wage growth, then in my opinion no more rate hikes might
be needed," Noga told TVN CNBC.
Polish Prime Minister Donald Tusk wants to meet the MPC in
late August or early September to discuss ways of combating
inflation, an adviser to Tusk said on Tuesday.
(Reporting by Kuba Jaworkowski, Dagmara Leszkova, Petra
Vodstrcilova, and Jason Hovet; Writing by Michael Winfrey;
Editing by Malcolm Whittaker)
