OUTLOOK Czech rates seen on hold this week, despite weakened crown

OUTLOOK Czech rates seen on hold this week, despite weakened crown

	Published : Mon, 25 Jun 2007 16:40 By : Agencies Print this Story

PRAGUE (Thomson Financial) - The Czech central bank (CNB) is unlikely to raise interest rates at a meeting this week, despite losses for the crown currency this month that have supported the case for raising Europes lowest interest rates.

I think theres about a thirty percent chance that the central bank increases the rate, said David Navratil, an analyst at bank Ceska Sporitelna.

Rising producer and consumer inflation as well as steady wage growth have supported the case for the bank to up borrowing costs after the economy grew at 6.1 pct in the first quarter. Analysts also say the weaker recent performance of the crown, which had hit all-time highs earlier this year against the euro, also speak for the bank to follow global interest rates higher.

However, the most recent polling of analysts shows that most think the central bank will refrain from raising the rate this Thursday and will wait for a quarterly update to its inflation forecast, before moving in July session.

'The latest rate hike was preventive rather than offsetting serious risks and I dont think the situation has changed much since then,' said Petr Sklenar, an analyst with brokerage Atlanitk FT.

Complicating this weeks decision is the absence of two board members, Miroslav Singer and Robert Holman, but analysts say governor Zdenek Tumas vote may again prove decisive after he cast the deciding vote when the bank raised rates on May 31.

Navratil said the central bank decision on interest rates is particularly sensitive to the strength of the Czech crown which has weakened compared to the banks April forecast.

'If the board members arrive at a conviction that the crowns weakening is long term, they will hike the rate,' Navratil said.

The interest rate now stands at 2.75 pct, the highest in four years, after a 0.25 pct rise in May. The euro zone rate is at 4 pct.

jana.mlcochova@thomson.com +420 222 191 108

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