* Bank to resume policy tightening in Q2 or Q3
* Demand for Czech goods to resume to pre-crisis level
* This year to record small growth
* Growth seen around 3 pct from 2011 on
By Jana Mlcochova
PRAGUE, Jan 20 (Reuters) - The Czech central bank may begin
monetary policy tightening in the second or the third quarter of
the year and start with a quarter point hike, central bank board
member Robert Holman said on Wednesday.
Czech interest rates are at a record low, with the main
two-week repo rate <CZCBIR=ECI> at 1 percent, on par with the
euro zone, after seven cuts totalling 275 basis points made over
the last 17 months.
The bank will update its quarterly inflation forecast at a
policy meeting on Feb. 4, and the new outlook will likely
confirm the path for rate hikes, Holman said.
"A rate increase will probably be consistent with the
forecast and I think that roughly in the second of the third
quarter we will raise rates by a quarter of a percentage point,"
Holman told Reuters in an interview.
Holman was in a minority voting for stable rates at the last
interest rate-setting session in December which voted to cut the
main rate by 25 basis points.
He said he was hesitating until the last moment whether to
vote for the cut or for stable rates but decided to stay put
mainly because of expectation of resuming rate tightening in
"two to three quarters".
"I thought the (December) rate lowering was a bit needless.
I do not think it has had any effect on the economic situation
here whatsoever... perhaps with the exception of the exchange
rate."
Most economists said it was the last rate reduction in the
present easing cycle and a period of stable rates lasting for
several months was to follow before the bank starts tightening.
Governor Zdenek Tuma said earlier this week rates may have
reached their lowest in the present easing cycle. [
Vice-Governor Miroslav Singer said Czechs would be among the
first in the world to raise rates, but tightening was unlikely
in the first half of this year. [ID:nPRG003864]
Holman is known for defending a policy of seldom making
changes to interest rates which he considers detrimental to the
corporate sector, as it complicates companies' financial
planning.
DEMAND TO RECOVER FULLY
The Czech economy has probably gone through the worst with a
short recession at the turn of 2008 and 2009. In its last
macroeconomic forecast from November, the bank sees a W-shaped
recovery, with the second, milder dip coming in the fourth
quarter of this year.
Singer said on Wednesday growth could reach about 2 percent
this year, above the bank's November forecast of 1.4 percent.
[]
Holman said his view of an economic recovery has not changed
markedly compared to the November forecast.
"We expect that a recession in western Europe has ended and
that this will spill over here through increased foreign demand.
We can expect a moderate recovery, on average it will be a bit
above zero, moderate economic growth."
In the years immediately ahead, growth should be around half
of the pre-crisis pace, about 3 percent, he said.
Holman said he expected foreign demand to resume to
pre-crisis levels after the economic downturn subsides and the
country's potential output should remain intact.
His remarks are contrast to November comments by
Vice-Governor Mojmir Hampl who said there was a risk the economy
could emerge from the crisis with a lower potential output,
which could lead to a rise in demand-led price pressures and
rates higher than the baseline interest rate trajectory assume.
[]
(Editing by Stephen Nisbet)
