PRAGUE: The Czech central bank is expected to keep interest rates on hold in August after trimming them to a fresh low in June as the contracting economy gets some help from a weak exchange rate that eases monetary conditions, a Reuters poll showed.
The bank cut the key two-week repo rate to an all-time low of 0.50 percent on June 28 in response to pressure from the poor euro zone economy and budget tightening but did not commit to more easing given the crown currency's weakness.
Eighteen out of 19 analysts polled by Reuters said they expected the bank to keep rates on hold. One said the bank would deliver a 25 basis point cut.
Of the 18, fourteen said the easing cycle was already at the bottom and the next move in rates would be a hike. The remaining four said the bank would make one more 25-basis point cut by the end of the year before reversing policy.
The government has been on an austerity campaign since it came to power two years ago.
Its fiscal discipline has helped cut government bond yields to record lows but it also hit consumption, helping to send the central European economy to a recession as it recorded two consecutive quarterly contractions in the fourth and the first quarter.
A second round of tax hikes slated for next year has already been approved in the lower house of parliament.
Government policymakers said on July 19 they expected the economy to do worse than they had thought earlier, and said they would refrain from additional tightening needed to stick to fiscal targets because the low-indebted economy could afford some slippage.
The crown currency's average rate in the third quarter has been 25.44 against the euro, weaker than the bank's forecast of 24.6, although it recovered some ground since end of June when it hit a 7-month low of 25.980 per euro.
The statistics office is due to release preliminary second quarter GDP data on Aug 14. Most analysts predict the economy continued to contract as external demand for Czech exports slowed and domestic demand remained subdued.
Inflation edged up in June to 3.5 percent from 3.3 percent in May mainly due to food prices, while adjusted inflation excluding fuels, a measure of demand-driven price growth, remained negative.
Factory gate prices (PPI), an early gauge of inflation trends in the economy, fell 0.3 month on month bringing the annual rate to 1.5 percent.
The central bank is expected to release a new macroeconomic forecast at the August meeting and most analysts expect downward revisions in growth forecasts.
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