Analysts expect Czech central bank to cut rates by quarter point

Prague, Sept 24 (CTK) - The Bank Board of the Czech National Bank (CNB) will cut interest rates by a quarter percentage point to a record low of 0.25 percent at its policy meeting on Thursday, according to analysts polled by CTK Monday.

The CNB should then keep rates unchanged at record lows for most of next year, analysts said.

Some analysts do not even rule out that CNB Board members will consider using non-standard tools of monetary policy, such as forex interventions.

At its last policy meeting on August 2 the CNB governing board left interests rates unchanged. The benchmark interest rate thus has been at an all-time low of 0.5 percent since the end of June.

"The current development of inflation and VAT deviates from the CNB's forecasts. In both cases the reality is lower than estimates. Conditions for further easing of monetary policy seem to be obvious. A question, however, is, whether a further cut of interest rates that are very low already will be effective," said Patria Finance chief economist David Marek, who expects a rate cut.

If the benchmark repo rate, from which interests on commercial loans are derived, the discount rate will stay at the same level. "It (discount rate) is usually lower than the repo rape but it cannot fall to zero because it is connected, for example, with sanctions for late payment of taxes," Marek noted.

According to Komercni banka analyst Jiri Skop, central bankers will most likely discuss non-standard monetary policy tools since space for further monetary loosening via rate cuts is limited.

"Forex interventions are the most effective tool in the Czech Republic's small and open economy. But not all members of the Bank Board will be in favour of non-standard tools," Skop said.

UniCredit Bank analyst Pavel Sobisek said he doubted that non-standard tools would be used. "And if so, it will not happen any time soon," he added.

The use of non-standard tools was indicated by CNB Governor Miroslav Singer last week.

"The following dissenting comments by vice-governor Mojmir Hampl, however, confirmed that Bank Board members are not pulling at the same end of the rope," Era Postovni sporitelny chief economist Jan Bures said.

The CNB policy meeting on Thursday, September 27, is to be attended by all seven members of the Bank Board.

In August, vice-governor Vladimir Tomsik and board member Lubomir Lizal voted in favour of cutting rates by a quarter point. Vice-governor Mojmir Hampl and members Kamil Janacek, Pavel Rezabek and Eva Zamrazilova voted in favour of keeping rates unchanged. Governor Miroslav Singer was absent from the meeting.