Czech central bank extends easing streak, market expects more
Adds comments from news conference
By Jason Hovet and Jan Lopatka
PRAGUE, Sept 25 (Reuters) -The Czech National Bank cut interest rates by 25 basis points on Wednesday, as expected, maintaining a slowed-down pace of easing as a slow economic recovery played against high price growth in services.
The central bank has steadily loosened policy since last year but has been moving more cautiously since August, with price rises in services and rebounding real wage growth posing inflationary risks. Decisions on further cuts would be made on merit, the bank said.
Wednesday's decision to cut the two-week repo rate CZCBIR=ECI to 4.25% was the seventh reduction since the bank began lower borrowing costs last December, when the key rate stood at a more than two-decade high of 7.00%.
The bank was cutting in 50-basis-point steps earlier this year but it slowed the pace last month.
Governor Ales Michl told reporters the bank had made no commitments to continued rate reductions over the coming months, saying the majority of the board saw a need for a cautious approach.
"The bank board still sees some inflationary pressures in the economy," he said.
"Therefore, the bank board considers it necessary to persist with tight monetary policy and carefully consider any further rate cuts."
The board listed increased wage demands, potential excessive growth in public sector spending and lasting services sector price growth among inflationary risks. It also saw a recovery of lending, especially in the property market, as another risk.
Weaker global economic activity, especially in the Czech Republic's main trade partner Germany, was a downside risk to inflation, the CNB said.
Czech central bankers in comments this month have signalled policy easing should continue, with the exchange rate stable and wages growing slightly more slowly in the second quarter. In contrast, the central bank's latest economic forecasts assumed no more cuts until the year's end.
Most analysts expect more rate cuts at the central bank's next policy meetings in November and December, which would put the repo rate at 3.75% at year-end.
"The CNB will go for another lowering probably already in November, when it will be deciding on the basis of a new forecast," Banka Creditas chief economist Petr Dufek said.
The crown EURCZK= was a touch weaker after Michl's news conference at 25.136 per euro, from 25.10 before the rate cut. It has been hovering on the weak side of the 25 per euro level recently since hitting a two-year low of 25.522 in August.
Inflation was steady at an annual 2.2% in August, close to the 2% central bank target. But service sector prices continued to rise last month by 5% year-on-year.
Reporting by Jason Hovet and Jan Lopatka
Editing by Christina Fincher and Ros Russell
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